Financial advisors are increasingly seeking out third-party investment managers and are devoting a growing amount of assets to external providers, according to a new survey from ETF provider FlexShares.
The biennial report found that 43% of advisors polled currently use third-party investment manager, and outsource an average of 57% of client assets under management in 2018, up from 53% in 2016.
“As advisors adapt to a growing demand for financial planning services and rising pressures on their bottom-line, they are increasingly looking to employ external investment management services,” Laura Gregg, director of client development at FlexShares, said in a release. “As they dedicate more client assets to outsourcing, advisors are able to benefit by spending more focused time with clients as well as concentrating on business development activities.”
The report said the main reasons given by advisors for outsourcing include seeking help for more niche strategies, such as alternative investments (65 %), freeing up time in their practice (61%), access to institutional quality due diligence/monitoring, (47%) and the ability to access to a variety of investment product strategies (43%).
However, the report found that external managers were not embraced by all advisors. It said that, consistent with past surveys, many respondents said they are hesitant to use external investment managers because investment research remains a core part of their firm’s value proposition. However, it also said this attitude may be changing as the percentage of advisors that cite this reason has declined to 32% in 2018, down from 45% in 2016, and 56% in 2014. Additionally, the desire to maintain flexibility was also cited as an important consideration by 15% of advisors who do not outsource.
It also said that satisfaction rates among advisors with external managers have consistently increased, rising to 97% in 2018 from 92% in 2010, while 62% said they have grown their client base as a result of external management, with 30% saying they have realized an increase in revenue as a result.
Of those responding to the survey, 39% were identified as wealth managers, 24% as financial planning firms, 18% as investment advisories, and 17% as investment managers.