"It's no coincidence that the advisors who spend plenty of time with clients are also those with the highest incomes."

Outsource It!

By John Bowen

If there's one mistake I see advisors making again and again, it's assuming that if they only manage their clients' investments well, they'll build truly successful businesses. In fact, little could be further from the truth.

Why? Because what your clients are looking for is a trusted advisor. They want you—a real flesh-and-blood person who is there to reassure them when the market turns down, to guide them through life changes, and to help them achieve all that is important to them. They want your voice on the phone and your face across the table. In short, they want a real relationship with you. And while investment performance certainly plays a part in client satisfaction, it trails far behind the relationship factor.

Industry research shows that few advisors have grasped the importance of focusing on building client relationships. One study by CEG Worldwide research director Russ Alan Prince found that fewer than one in 10 advisors spends more than 60 percent of their time in front of clients. Most advisors spend between 30 percent and 60 percent of their time in front of clients, while more than a quarter (28.1 percent) spend less than 30 percent of their time with clients. In other words, the vast majority of advisors are failing to provide what their clients most want—their time.

It's no coincidence that the advisors who do spend plenty of time with clients are also those with the highest incomes. According to our research, those few advisors who spend more than 60 percent of their time in activities involving direct client contact enjoy annual incomes that are more than three times those of advisors spending 30 percent to 60 percent of their time with clients and nearly six times those of advisors who spend less than 30 percent of their time in front of clients.

But running a financial services practice obviously requires many types of skills besides building client relationships. So what is the answer? Consider outsourcing every one of your business functions that does not involve client relationship management. In fact, today's top advisors are discovering that an outsourcing strategy is now critical to their businesses because it allows them to do more of the one thing that really does matter—spending time with their clients.

The following eight systems are the ones advisors most frequently choose to outsource:

Information technology (IT). Companies of all types and sizes have been quick to realize the benefits of outsourcing IT, which has a long business history. If you choose to outsource your IT function, ensure that your service provider is responsible for both client database support as well as overall technology support.

Marketing and business development. You don't have to reinvent the wheel here. Firms or individuals who specialize in both of these competencies are available to contract their services.

Finance. Most advisors hire an accountant or bookkeeper who is proficient in financial software such as QuickBooks or MYOB.

Compliance and legal support. Both of these functions can be contracted out based on usage.

Administrative support. Many advisors now use administrative assistants on a contract basis who are often not located nearby geographically. My own administrative assistant is located on the other side of the country, for example, and my transcription services are performed electronically in India.

Investment solutions. Options here include buying software and performing the function internally, paying someone to do this outside, or hiring a turnkey firm or administrative group to do it for you.

Portfolio management reporting. As with your investment solutions, three options are available for outsourcing.

Basic financial planning. This is another function that you can easily contract out to a financial planner who will be working under your guidance.

There are two places to turn for outsourcing assistance. Clearly the first choice is your financial institutional partners—your broker-dealer, investment product providers, and turnkey asset management provider. From technology solutions to marketing help to financial planning, these institutions can be valuable outsourcing partners.

But for many non-client relationship functions, you will hire qualified free agents as needed. As more advisors turn to independent providers, they are finding that free agents are often more focused and committed to completing projects successfully than employees. So they are enjoying better quality control and higher profit margins.

Free agents, however, do present a new set of challenges when it comes to finding, hiring, and managing them. The following 12 steps will make the process as successful as possible.

1. Define your needs. Pull together your current costs of doing the function in-house. Be clear on the results you hope to achieve by outsourcing (i.e., lower costs, improved performance, enhanced service). If you have a big outsourcing project, design a request for proposal (RFP) that includes performance metrics, evaluation criteria, scoring process, and a financial model to evaluate price or cost.

2. Define the needed skills. Determine the specific skills you will need in a contractor before you start hunting for one. Most people specialize, so don't expect to find a broad range of diverse skills in any one person (and if you do, expect to pay for it).

3. Anticipate issues. Take a moment to think through the effect on your business of outsourcing this particular function. If necessary, act to head off any potential issues or problems.

4. Get referrals. Because more advisors are moving toward virtual offices, they can be your best source of referrals for high-quality contractors with experience in the financial services industry.

5. Interview candidates. Identify the most qualified candidates and interview them. Again, if it's a large project, evaluate their proposals in response to your RFP.

6. Check their references. When you've identified a few good candidates, ask them for their references. Do check those references, but when you talk to each, ask if he or she knows anyone else that free agent is working with and then place a call to that firm as well. Often you'll get a different and much more insightful perspective from references once removed because they will not have been pre-selected by the free agent.

7. Create a good fit with existing staff. Freelancers should complement your existing team by bringing in new expertise and talent. They should not displace your team by working on interesting projects that your current staff is perfectly capable of doing. Simply duplicating existing skills will erode the morale of your permanent team. Where appropriate, involve your staff in freelancer hiring decisions.

8. Select your new provider. You're looking first for expertise, but you also need credibility and, in many cases, a team player.

9. Negotiate a contract. Once you've chosen the leading candidate, negotiate the details of the contract. Create a clear independent contractor's agreement that defines the project, deliverables, deadlines, and benchmarks. It should spell out the billing and payment process and deal with any intellectual property issues and relevant non-compete provisions. An employment attorney can draft a boilerplate agreement that you can use repeatedly.

10. Start slowly. As you work with free agents, use bite-sized pieces to start. Assign a meaningful project (but not one that is mission critical), for which you might pay in the low four figures, to assess how they perform. If you are forced to outsource a project that is mission critical to unfamiliar contractors, you can evaluate them on the fly much as you would a potential employee. Hire them as a consultant to put together a plan for how they would complete the project in the assigned time frame. Have them talk to clients and internal staff as appropriate and then present their solution to you.

11. Manage and monitor. Be clear about expectations, but don't micro-manage them. Let contractors freely use their own expertise and creativity to achieve results. Give them access to internal people and resources as needed. Set up a clear channel of communication, preferably with a single point person in your firm, so that you can be apprised of project process and so that contractors can stay current on any changes in the firm that affect the project. Give contractors every opportunity to succeed.

12. Pay promptly. If freelancers are diligent about completing their projects in a timely manner for you, they will be justifiably irked if you then take 90 or 120 days to process their invoices. And you'll quickly gain a reputation as a slow payer among the networks of freelancers, making it more difficult for you to bring on good people in the future.

Outsourcing can be an incredibly efficient and cost-effective alternative to the traditional business model of an advisor and staff working in one office from 9 to 5. While it's not always easy and will take some time, it will provide you with access to top-level talent whenever you need it.

To do well for your practice and for your clients, you need the business solutions that will guarantee the highest possible level of client satisfaction while delivering the biggest possible profit margin. Outsourcing is already a part of those solutions and will only grow more so in the future.

Reprinted from: FINANCIAL PLANNING