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I recently joined Rich DeSalvo of F3 Logic and Barrett Ayers of Adhesion Wealth for Adhesion’s monthly podcast, Power Your Advice.”  The topic of conversation was the benefits of outsourcing, and how RIAs can best utilize their relationship with outside business partners.  We discussed how COVID accelerated many RIAs’ acceptance of outsourced services as opposed to managing tasks in-house.  Resources were spread extremely thin across wealth management firms as advisors began working from home and clients began to require increased attention to get them through the market volatility of March/April 2020.  While the year ended in a good place for many RIAs, that shock to the system in the spring forced RIA owners to focus on operational efficiencies, scalability, and made them evaluate what services could be outsourced to free up internal resources for client-facing tasks.

Barret then asked us, “Now that RIAs are more comfortable exploring outsourced solutions for things like bookkeeping, compliance, IT support, healthcare/payroll, and investment management, what are some keys to determining a good fit with an outsourced provider?”  And as an “operations consultant,” I could have provided a lengthy due diligence checklist that firms can go through when evaluating vendors, but I thought it would be more valuable if I addressed a very common source of frustration many RIAs struggle with when outsourcing, and that revolves around expectations.  Regardless of the nature of the task you are looking to outsource, it is imperative that you understand there will always be components that will remain the responsibility of your internal team.

For example, your bookkeeper is still going to require a considerable amount of work and quality data from you to complete your financial statements or process your quarterly billing and expense reports.  Your PEO provider that manages payroll is still going to require someone at your firm to submit timesheets and vacation/sick days for every pay period.  If you are using an IT Support firm to manage your network, provide desktop support, and offer cyber security protection, you already know that you cannot wipe your hands clean of all IT responsibilities – you still need someone internally to act as the point person for this IT vendor.  If the phones go down, who is the internal resource that will contact the IT vendor to troubleshoot the problem?  That IT firm will need someone onsite to possibly reset the switch in your office, or reboot the firewall, etc.

After hiring Addepar, Orion, Black Diamond, etc., many RIAs sit back and say, “Well, we have outsourced performance reporting!” and feel they no longer need to spend time or resources on the task of creating performance reports, viewing groups, billing groups, customizing portal views for clients, classifying asset classes and securities… the list goes on.  Performance reporting vendors sell technology solutions that allow the RIA to manage performance reporting – it is not an outsourced solution at all.  Most RIAs have a full-time employee dedicated to performance reporting.  Many firms employ an entire team of employees tasked with all the nuances of performance reporting.

It is vitally important to have an honest conversation with a potential outsourced partner early in the due diligence process.  Ask them, “Exactly what components are you handling for me, and what tasks will you still need our team to handle internally?”  It may be that they are merely handing you tools to process the task more efficiently, and contrary to your early understanding, they are not offering an outsourced solution at all.  Or, like an outsourced compliance consultant filing your ADV, there may be a very detailed questionnaire and quite a bit of data gathering required on your part before they can complete the process on your behalf. 

This isn’t to say these are “bad” vendors or that these solutions won’t prove to be valuable to your firm, but your relationship with that solution provider (and your frustration level) will start out on the right foot if you go into the relationship with a full understanding of exactly where in the workflow they are removing tasks on your part and where you will need to maintain some level of responsibility.  2020 provided us all with a smack-in-the-face reminder that time is our most valuable asset, and outsourced solutions that save any amount of time for our internal staff can be worth their weight in gold.  To have the most fruitful relationship possible with outsourced vendors, you just need to have a clear understanding of where, and how much, time they are saving you.