It’s far from a new invention but outsourcing is fast becoming the norm for advisors adapting to a changing industry.
Faced with the need to prove value to clients, often via high-touch service, many are buckling under the weight of compliance, paperwork and the pressure to grow or maintain their book.
Forstrong Global offers an outsourcing solution and believe its expertise across a range of geographic markets can eliminate the three main challenges advisors tell them they are faced with: compliance, scalability and admin.
Krystian Urbanski, senior vice president, associate portfolio manager, private client group, told WP the main reason people outsource is to eradicate risk. And while he recognised the need and importance of compliance, Urbanski believes that in many cases it has spiralled out of control.
Relieving an advisor of that burden, and often having a robo record all transactions, simplifies the business and makes things more readily available if IIROC or the MFDA come calling for an audit.
Urbanski told WP: “Outsourcing is becoming the norm and I think it is going to become more of the norm.
“Our industry did not place a great deal of value on the process of financial planning. For example, investment selection was considered more valuable and it was up to the financial advisor to pick the next 'winner'. Those days are gone - financial planning is becoming a staple of the industry and by adding investment outsourcing to the mix, the advisor has a tremendous value advantage.
"Secondly, anyone can learn to pick winners over a number of years, technology has made that possible. Simple asset allocation is available to everyone. However, a typical client with a family needs more than that; they need retirement planning, budgeting and risk management."
The issue of value add is a perennial debate but Forstrong believes it plays into changing investor needs. As the population matures – and with many scarred by the 2008 financial crisis – investors are becoming more risk averse and are looking for downside protection during challenging markets.
This translates as wanting reasonable returns with a reasonable level of risk, which for Canadian investors with highly concentrated domestic markets means more of a globally focused portfolio, which is where Forstrong positions itself.
Understandably, your average advisor will have knowledge gaps in many of these markets, so outsourcing that part of their portfolio to experts can be attractive. Forstrong compares advisors to GPs; just like the doctor who refers people to a specialist for different conditions or illnesses, so advisors refer clients to portfolio specialists depending on their needs.
Urbanski added: “The advisor is becoming a relationship manager and that’s where the value is. Our typical advisors do financial planning first to determine clients' needs. Based on those needs, the advisor finds a company that's aligned with the client goals. If Forstrong is doing a good job that is aligned to the client's needs, then everyone is happy. If things are not going as planned, then the advisor and client have an opportunity to revisit their plan and adjust their strategy."
The portfolio manager said that the returns conversation is one that has changed as investor psychology has shifted. Back in the 1980s, people went to advisors in order to make money, now it’s a case of here is my money, don’t lose it. Again, that leads back to 2008, when “shit got real”.
Rebalancing is a key part of this process and Urbanski said that is another reason to outsource.
He said: “A typical advisor has 100 clients. So, what are they doing? They are talking to the client, doing financial planning and getting calls on a regular basis. How much time do you actually have to manage money in portfolios?
"Rebalancing an investment strategy based on market and economic conditions is one of the most important aspects of investment management. This process takes a lot of knowledge, time and effort. Many financial advisors don't have time to rebalance on a regular basis. By outsourcing, the portfolio manage rebalances every portfolio, leaving the advisor to concentrate on the relationship and emotional support."
In terms of scalability or advisors wanting to reinvent themselves, Urbanski believes outsourcing has the potential to assist both. By eliminating the mutual-fund selection process, the compliance and admin, advisors are left with more time to chase income-producing activities like estate planning or wills.
He said: “What do you have to do to grow any business? Marketing - time invested in promoting yourself. Doing admin and compliance, while important, don’t generate business. Being a financial advisor is great. You can be the greatest financial advisor in the world but if you have no business, you have got nothing.”