Practice Management

Many Advisory Firms Centralizing Portfolio Construction

They are finding this results in better performance and reduced litigation risk.

By Lee Barney editors@strategic-i.com | September 12, 2017
Many advisory firms are centralizing portfolio construction at the home office and asking their advisers to focus, instead, on relationship building, according to Cerulli Associates. The firms are finding this results in better performance and reduced litigation risk.

“Many advisers pride themselves on their portfolio management skills,” says Tom O’Shea, associate director at Cerulli. “But Cerulli finds that home-office-managed portfolios outperform portfolios managed by advisers. Increasing due diligence may be cumbersome and expensive [for] many advisers. As a result, advisers will gravitate toward offloading this responsibility to their home office or even a third-party strategist.”

Cerulli also found that outsourcing of portfolio construction favors unified managed accounts, which have grown 23.3% in the past year to $644.9 billion in assets. Additionally, most advisers expect to increase their unified managed account assets in 2018.

Independent broker/dealer advisers are more likely to outsource portfolio construction than independent registered investment advisers. Additionally, younger advisers are more likely to retain control over portfolio construction, as they look to their mentors for guidance on how to do it.

Those who outsource can then focus on holistic financial planning. Advisory firms are also offering software to advisers to help them onboard new clients.