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Written by: Deshawn Peterson
This week’s edition is presented by “Olive'“ the guest in the picture below. I was outsourced as a dogsitter and it triggered me to write this.
Financial advisors are dealing with two constant questions: How do I best serve the client? How do I build a better practice?
Both questions are perpetual and never finished. For today’s edition of GFSD, let’s focus on the latter briefly.
Financial advisors are in the middle or early stages of the greatest wealth transfer in history over the coming years. So considering ways to better the business is more important for each day moving forward.
The Great Wealth Transfer is poised to begin, with the baby boomers – who own about half the country's wealth – passing on $84 trillion through 2045. Experts project that younger generations such as Gen X and millennials will inherit $72 trillion, while charities receive the rest. - Bankrate.com
The above numbers alone are astounding. Now add the pressure of trying to capture even the smallest market share of USD 84 Trillion.
I’m in a lucky enough position where I can speak to advisors across the RIA and MFO space and learn deeply about what they are dealing with constantly. Outside of the financial planning component, they are dealing with small/ medium business hurdles like any other professional for example:
- We are looking for ways to retain and attract younger talent while considering succession planning for the advisory.
- This tax season has exploited some internal shortcomings and bottlenecks. Now, we are considering building internally or having a partnership.
- Growing wallet-share is our top priority so we are focusing on ways to refer the client out the door as few times as possible.
No matter where you are in the business, these questions are real and constantly being revisited. To resolve this type of internal inefficiencies. Advisors continually debate what to keep in-house or outside partnerships, from accounting to HR to software. Below we will explore some of the pros and cons of outsourcing.
Pros
Businesses report an average cost reduction of 15% through outsourcing, according to the International Organization for Standardization - ISO
Studies by Harvard Business Review suggest cost reductions of around 20-30% by outsourcing non-core functions like bookkeeping or recruitment. - Harvard Business Review
Access to Expertise: Sometimes, businesses need specific skills or knowledge they don't have in-house. Scaling an internal team takes time, hiring, processes, and trial & error. This ramping-up period is affecting the business.
Cons
Communication is probably one of the most important items to consider. When you outsource, you may not have decision-making ability on demand due to the separation of processes. If your outsourced provider isn’t an effective communicator, it delays any progress even further. This creates another bottleneck and worsens the experience.
Quality Control
You don’t know the work until it’s done. When selecting a partnership, there’s only so much preparation and planning before the execution is done. This is a true testament to the quality of the service. Sometimes this doesn’t match expectations and can put your firm in a long-term agreement that isn’t working out.
Reputation and company morale is affected by selecting the wrong partner. No matter the function, we pride ourselves on doing a good job. A bad partnership can ruin that within moments’ notice and your firm’s morale can be greatly affected.
Outsourcing cuts costs and boosts expertise, but risks communication, control, and security.
Choose wisely.