Delegating/outsourcing: When does it make sense?

It can make good sense for an adviser to share plan responsibilities when it is likely to lead to improved outcomes or reduced costs.

By | October 02, 2013
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This applies to internal delegation and to outsourcing of tasks to external service providers.

It is a breach of fiduciary duty to allow a plan to incur costs that are unreasonable.  For this reason, and to foster strong client relationships, it is important to consistently deliver good value to plan clients.  If an adviser is able to manage down his costs through delegation and outsourcing, he can pass these savings along and enhance competitiveness. 

While few advisers explicitly bill clients for time expended, most of us heavily factor time expectations into our pricing models.  We touched on this in our last column, “TrackingTime.” In speaking with advisers, and reviewing benchmarking data, the range of hourly time valuations generally lie between $250 and $600.

An adviser who needs to get $500 or $600 per hour to make her business model work needs to be especially adept at delegation of more routine tasks to lower-cost team members in order to avoid pricing themself out of the “reasonable zone.”   For example, it might be quite reasonable for a high-end adviser to create custom presentation material at a $500 hourly rate, but it might be unreasonable to have the same person spend a day presenting this material at employee meetings at a cost of $4,000, if a capable, lower-cost associate was available. 

Many plan tasks can be outsourced to third-party service providers.  Most large plan providers offer a range of services beyond the day-to-day recordkeeping.  These ancillary services can cover such things as plan design and compliance consulting, participant advice services, asset allocation model management, fiduciary services, investment reporting and employee communication and education.