The coronavirus pandemic is altering an array of industries, including finance, and how advisors are working with clients.
A recent survey by Northern Trust Asset Management’s FlexShares Exchange Traded Funds (ETFs) confirms that the pandemic is prompting more advisors to consider outsourcing some of their business structures.
“The survey of more than 500 advisors found that the share of advisors using external managers today (41%) is virtually unchanged from 2010 (42%), however the pandemic has encouraged firms that do not currently outsource to reassess their approach,” according to FlexShares.
“When firms that handle investment management in-house were asked whether their opinion of outsourcing has changed as a result of the pandemic, 15% of respondents said they planned to increase usage of outside managers and 85% said they plan to reconsider the use of external management. While the pandemic has not triggered a significant shift towards third-party investment outsourcing to date, it’s a growing consideration among advisory firms,” notes the FlexShares survey.
Targeted Outsourcing
Advisors working with outside managers are becoming more sophisticated and targeted in how they outsource.
“Advisors are more likely to outsource some or all investment strategies for all their accounts, rather than just their largest clients,” notes FlexShares. “This all-account approach is the choice of 49% of those who outsource, up from 39% in 2018 and 33% in 2016. However, the overall percentage of client assets outsourced was unchanged from 2018 at 53%. This may reflect a smaller scope of activities employed across a greater number of clients.”
Clients meanwhile don’t need to worry about the increasing levels of outsourcing. Advisors are taking a more hands-on approach to the endeavor.
“Despite using external managers for a greater number of accounts, advisors are becoming more selective in the activities they choose to outsource. The percentage who outsource all activities has consistently declined to 12% of respondents from 50% in 2012. Approximately two-thirds (66%) outsource portfolio management, with product selection and asset allocation also key areas of focus. Some 15% of advisors use external managers for product selection, up from 8% in 2018. When asked for the first time about usage of outside asset allocators, 32% of respondents said they outsource the function,” said FlexShares.
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