Is outsourcing right for your practice?

Once they've built a successful practice, advisers often realize that what got them to that point won't help them reach the next level.

Once they’ve built a successful practice, advisers often realize that what got them to that point won’t help them reach the next level. While they know what it takes to run a thriving business, they feel bogged down in the details of trying to do everything themselves — from administration and compliance to business development and servicing clients.

From my perspective, advisers are bumping up against a “ceiling of complexity” — a point at which working longer and harder doesn’t necessarily produce positive results. Ultimately, this ceiling of complexity limits how successful and productive an adviser can be.

Increasingly, advisers are realizing that breaking through this ceiling means making the decision to outsource aspects of their business.

By refocusing on their unique abilities and leveraging everything else through outsourcing and partnerships, advisers are reclaiming the energy and talents that fueled their practices in the first place.

Advisers face an increasing number of options to address the challenges of building and managing a successful advisory business. Searching for the right back-office solution, business development system, technology platform and investment alternatives is a full-time job.

In addition, the expense of at-tracting and retaining key employees makes it difficult for many advisers to manage their businesses effectively, much less profitably. Moreover, higher general operating costs and reduced fee pressures have reduced margins.

That means what started out as a client-centered business often results in a business with great administrative complexity. To combat that problem, advisers are outsourcing business-related functions to run more-effective practices and to increase the time spent cultivating long-term client relationships. To determine if outsourcing is the right course of action for your firm, consider the following factors:

• Understanding the need: Advisers need to assess how they spend their time during the week. Frequently, 80% of productivity stems from only 20% of activities. Advisers can begin by tracking how much time is spent on revenue-generating efforts, compared with operations and administrative functions.

They should ask how this assessment compares with firms that allocate a significant portion of their time to client-focused activities.

Advisers need to consider variables such as how much time is spent on higher-dollar-value tasks versus lower-dollar-value tasks. Could hiring more staff achieve similar costs and results? Could adopting an outside technology platform make the firm more efficient? How does the time spent on activities such as oversight and training affect growth?

After making such an assessment, Michael A. Dixon, president of Dixon Financial Services Inc. of Lafayette, Calif., made the commitment to grow with the help of an outsourcing provider after evaluating the expense that hiring in-house employees would have on the firm’s growth plans.

• Defining the solution: Effective, sustainable outsourcing focuses on what the adviser and team members do best, then delegating the remaining tasks to an outsourcing partner.

This involves determining the desired combination of outsourced and in-house services, and identifying the specific functions that are worth doing in-house from both a time and cost perspective.

At Dixon Financial, the ideal outsourcing picture includes a flexible, dependable business platform, business development support, a first-class investment process, and op-portunities for peer interaction and continuing education.

In defining these parameters, Mr. Dixon determined that maximizing his time, with minimal distractions, was his strictest parameter in selecting an outsourcing partner.

• Selecting an outsourcing partner: The final step in the outsourcing decision is provider selection. It is important to choose from several service providers. They can help advisers better understand their own needs.

Second, using a questionnaire as part of the screening process can help address an adviser’s most im-portant questions and provide a basis for differentiating prospective providers.

In evaluating outsourcing op-tions, Dixon Financial used a grid questionnaire that reflected the firm’s priorities and allowed for easy comparisons among providers.

Finally, talking to established users before making a final decision can give advisers more insight, answer questions and confirm ob-servations made during the screening process.

Al Steele is president and chief executive of Bellatore LLC, an asset management solution provider in San Jose, Calif.

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