In recent years, a notable shift has emerged within the financial advisory industry: many seasoned advisors are delegating investment management responsibilities to third-party specialists. This trend allows advisors to concentrate on personalized financial planning and goal-setting with their clients, entrusting the intricacies of portfolio management to external experts.

The Rationale Behind Outsourcing Investment Management

Advisors cite several compelling reasons for this transition:

• Enhanced Client Focus: By outsourcing, advisors can dedicate more time to understanding clients’ unique financial goals, life aspirations, and risk tolerances, fostering deeper relationships and more tailored advice.

• Operational Efficiency: Delegating investment management tasks frees advisors from the demands of market analysis, portfolio adjustments, and administrative duties, allowing them to streamline operations and serve a larger client base effectively.

• Access to Specialized Expertise: Third-party investment managers often possess specialized knowledge and resources, potentially leading to more sophisticated and diversified investment strategies that benefit clients.

A significant facilitator of this outsourcing trend is the rise of Turnkey Asset Management Platforms (TAMPs). These platforms offer comprehensive investment solutions, including portfolio construction, management, and reporting, enabling advisors to provide high-quality investment services without directly managing assets. The adoption of TAMPs has grown substantially, with studies indicating that a majority of Certified Financial Planner (CFP) professionals now utilize these platforms to some extent. IT has always been the case that Financial Advisors have outsourced the financial management to Mutual Fund, then Index Funds, then UMAs, and now TAMPS.. Financial Advisors beleive that they can seperate the outcomes of perfromance from their recommendations because they can fire and hire a new manager if things go poorly. 

Benefits and Considerations

Outsourcing investment management offers several advantages:

• Scalability: Advisors can expand their practices and manage more assets without a proportional increase in workload.

• Risk Management: Specialized investment managers may implement advanced risk management strategies, potentially enhancing portfolio resilience.

• Client Satisfaction: With more time devoted to personalized planning, advisors can address clients’ holistic financial needs, potentially improving satisfaction and retentio

  In contrast to the growing trend of financial advisors outsourcing investment management to third-party firms, Drexel & Co. maintains a steadfast commitment to directly managing client portfolios. We believe that advisors charging a management fee should be actively involved in the investment process, ensuring alignment with clients’ financial goals and providing personalized service.

  Drexel & Co.’s Approach to Investment Management

  At Drexel & Co., we prioritize a hands-on approach to investment management, focusing on:

  • Direct Portfolio Management: We manage client investments in-house, allowing for tailored strategies that reflect individual objectives and risk tolerances.

  • Selective Use of External Managers: We engage third-party managers only in specific, inefficient markets where specialized expertise is essential, ensuring optimal performance without unnecessary delegation.

  • Comprehensive Understanding: Our advisors possess deep investment knowledge, enabling informed decisions about portfolio construction and management, rather than relying solely on external parties.

  Concerns with the Outsourcing Model

  We question the efficacy of advisors who, lacking investment expertise, delegate portfolio management to third parties. This practice raises concerns:

  • Due Diligence Challenges: Without a solid understanding of investment principles, advisors may struggle to effectively evaluate and select competent third-party managers, potentially compromising client outcomes.

  • Value Proposition: Charging substantial management fees without directly contributing to investment decisions may not provide clients with the value they expect and deserve.

  • Accountability Issues: Relying on external managers can lead to a diffusion of responsibility, making it difficult for clients to hold any one party accountable for investment performance.

  Drexel & Co. rejects the philosophy of outsourcing investment management, choosing instead to engage directly in the stewardship of our clients’ assets. We believe that true fiduciary responsibility involves a comprehensive understanding of both financial planning and investment management, ensuring that clients receive the full value of the fees they pay.