Efficiency Key to Long-Term Growth Advisors seeking more face time with restless clients

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1 Time Management & Outsourcing Toolkit Advisors seeking more face time with restless clients With a growing sense that the worst of the economic troubles may be over, financial advisors are working hard to recapture lost assets, regain the confidence of shaken investors, and carve out a path to sustainable growth. Compounding these challenges is a client base that s rightfully demanding more and better ideas that provide the growth they want and the protection they need. And because of these increased demands, advisors are questioning everything they do especially time-consuming activities in an effort to be more efficient. More than ever, advisors are hungry for more face time to strengthen their relationships with ever-demanding investors. Time spent with clients and prospects is an irreplaceable investment for advisors who want to see their productivity grow, said Financial Advisor magazine in January. What can be outsourced and what can be done in-house to better leverage time is the real secret to profitable growth, Financial Advisor wrote. 1 At the head of the list of time-consuming practices is portfolio management. A recent College of Financial Planning survey revealed an increase in advisors delivering comprehensive plans and tailored strategies. It found that 36% of advisors clients are receiving written plans. 2 This increased customization, even for a minority of clients, can place a burden on advisor time and resources.

2 PAGE 2 Managing Product Proliferation What s more, the proliferation of products suggests an increased level of complexity. According to Cerulli Associates, 75% of advisors polled stated the influx of products has made portfolio construction more complex and time consuming. 3 The knowledge required today has become too great, making portfolio construction increasingly nonproductive and even unrealistic for the advisor to manage alone. As the product universe continues to expand, separating the wheat from the chaff becomes increasingly burdensome and important. Cerulli Associates, 2007 Advisor Survey These changes mean the days of a lone analyst building portfolios for the firm s client base is rapidly fading. The knowledge requirement is too great, the options too numerous. To meet the expectations of the discerning investor, more and more firms are seeking help. Even those who believe building portfolios is vital to their client relationship are creatively repositioning themselves. Many are assuming the role of quarterback fully in charge of their client s financial plans, but backed by a team of specialists. corners of the industry research firms, the media and investment advisors themselves that one way to remain competitive is to outsource labor-intensive tasks like investment management. According to a recent survey by Cerulli Associates, more than one third of advisors are inclined to outsource at least some of their investment management and operations. THE REASONS ARE COMPELLING Need to focus more time on client relationships and business development Increasing complexity and time demands of portfolio construction, monitoring, and rebalancing Escalating labor costs, especially for highly compensated investment professionals Need to provide clients with a level of diversification difficult to achieve using internal resources Client demands for increased communication, education, and information to help keep them informed PORTFOLIO CONSTRUCTION PROCESS BECOMING MORE COMPLEX Significantly more complex * Source: 2007 Cerulli Advisor Survey Somewhat more complex (Percentage of all advisors) No difference Somewhat less complex Significantly less complex That s where outsourcing comes in. For many advisors who have had difficulty letting go of investment management because they believe it is core to their value proposition, outsourcing provides some muchneeded relief. There s growing recognition from all Setting Priorities Any advisor you ask will claim that client service is job one at his firm. Interestingly, survey results tell a different story. In a recent SEI survey, the Risk Dynamic 4, 82% of respondents said that a trusting client relationship is the most important reason why clients stay with their advisor. Yet, according to the same survey, 65% of advisors claim to spend less than 30% of their time servicing clients. 4 Clearly advisors are caught up in running a business, from back-office administration, to portfolio construction and management. We re suggesting that advisors shorten their to-do list. You can t unload client service, but you can help your case significantly by outsourcing other time-consuming tasks. Staying Competitive In addition to having more time to service clients, you ll also free up time for business development. This is evident in a recent study by Seattle-based consultant

3 PAGE 3 Moss Adams. More than 20% of the 1,000 advisors surveyed said bolstering business development tops their list of priorities. However, most advisors understand that effective marketing can stretch the resources of even the largest firms, which brings us back to the wisdom of outsourcing. For example, according to the same 2006 Moss Adams Financial Performance Study of Advisory Firms, advisors who outsource are generally more profitable because they have more time to service existing clients and garner new ones. Leonard Raskin of Wealth Advocacy Partners in Sparks, MD, said that outsourcing has made life easier for his staff and allowed him to serve my clients, find more clients and help people. Johnne Syverson expresses the advantages more quantitatively. Syverson, co-founder of Syverson Strege & Company in West Des Moines, Iowa, manages $300 million in assets with three CFAs and eight CFPs on staff. He told Registered Rep in April that outsourcing has drastically reduced time devoted to asset management. Before he began outsourcing, he said, selecting funds for clients used to take about 65 percent of our time. And now the investment management process takes 20 percent of our time. While his firm continues to do the asset allocation for their high-net-worth clients, his outsourcing partner has taken the complexity out of the portfolio-construction process. No Sacred Cows Bob Clark, an industry observer who writes for Investment Advisor magazine, said it s time to take a hard look at all the labor-intensive tasks performed by advisory firms to see if they can be effectively outsourced to someone else. In addition to investment management, candidates for outsourcing include operations, investment technology, reporting and compliance. According to a recent Charles Schwab study, owners of Best-Managed Firms spend 24% less time per week on operations and portfolio management than others of other firms. 5 Portfolio management, as probably the most labor-intensive task handled by you or your staff, shouldn t be a sacred cow, Clark said. To some advisors, letting go of investment management is difficult because they believe it is core to their value proposition. But Lisa A.K. Kirchenbauer, an advisor in Arlington, Virginia, sees it otherwise. Kirchenbauer, a financial life planner, outsources many functions, including money management. I ve made the change because I realized that investment management is really more of a commodity and tangential to the overall financial planning work I do, she told Financial Advisor magazine. 6 Some firms consider adding to staff, as opposed to outsourcing, but that s problematical in a period of rising labor costs. A 2007 Moss Adams study on Compensation and Staffing for Advisory Firms underscores the pressure on compensation, especially at the senior level. In addition to rising salary costs, more and more firms are obliged to offer incentive pay and benefits like defined contribution plans. Annual Compensation ADVISOR COMPENSATION AND EXPERIENCE BY LEVEL OF RESPONSIBILITY $150,000 $125,000 $100,000 $75,000 $50,000 $25,000 $0 $45,000 3 Support Advisor Service Advisor Lead Advisor Median Compensation * Source: 2007 Moss Adams study, pg. 10 (fig. 23) $71,250 Avoiding Difficult Conversations Shedding those time-intensive chores is especially valuable during periods of high market volatility, when clients are nervously eyeing their portfolios. During such times, it s vital to educate clients about the markets volatility, risk and the importance of patiently sticking to a long-term plan. But those conversations take time, the one thing most advisors lack. 7 $142, Median Experience Years Experience

4 PAGE 4 Outsourcing is also an opportunity to provide your clients with a depth of diversification tough to find elsewhere, which can help avoid those difficult conversations about underperformance. At SEI, most portfolios use multiple managers in a single style (commonly referred to as a manager-of-managers program), each practicing a distinct approach to investing. If any one manager underperforms, the presence of other managers practicing complementary styles will help to minimize the impact on performance. THE POTENTIAL BENEFITS OF OUTSOURCING Saving Time time to focus on developing deeper consultative client relationships and cultivating new relationships. Stronger Investment Options gain increased diversification, manager expertise, and an institutionalized global investment process that can help provide predictability and scale. Resource Optimization focus staff resources on activities which client s value and activities that drive revenue and growth. Increased Client Communications gain valuable tools and content which provides enhanced communications with clients and prospects without the need to invest valuable firm resources. Practice Efficiency leverage an outsourcing partner s resources and strategic alliances to enhance your practice. In that situation it is also important to educate clients on the value of a long-term investment. Michael Byrne at Lighthouse Planning in Cherry Hill, New Jersey, uses a race car analogy. In a NASCAR race, everyone wants to be the first car around the track. When clients come with us, I guarantee them that they will not be in the fastest car. My goal is to get them around the track without an accident so they can retire and so their kids can go to college. Given today s markets, making it safely around the track sounds pretty good to most investors. Finding the Right Balance According to the Charles Schwab study, the bestmanaged firms work smarter, not harder. One way to work smarter would be to spend less time on operations and portfolio management and more on client service and business development. More importantly, they achieve this through standardization of service delivery, outsourcing routine tasks, and only offer what is valued by their clients. At the same time, advisors need to ensure they don t look at outsourcing as an all-or-nothing decision. Outsourcing only a percentage of the portfolio management tasks in an average firm can free up significant time. For example, let s consider a firm with 200 clients in which the advisor works 50 hours per week and devotes 34% of his or her time to portfolio management. In that scenario, an advisor can save over 260 hours simply outsourcing only 50% of the portfolio management tasks. 5 That translates to more than six weeks per year that you can devote to meeting with clients and developing new relationships. For more information, visit or call SEI-ANSWERS ( ) to speak with a representative.

5 PAGE 5 About the SEI Advisor Network The SEI Advisor Network provides financial advisors with turnkey wealth management services through outsourced investment strategies; administration and technology platforms; trust, banking, and institutional services; and practice management programs. Through these services, SEI helps advisors save time, grow revenues, and differentiate themselves in the market. With a history of financial strength, stability, and transparency, the SEI Advisor Network has been serving the independent financial advisor market for more than 16 years, has over 6,000 advisors who work with SEI, and more than $29 billion* in advisors assets under management. 1 Financial Advisor magazine, January 20, College for Financial Planning, 2009 Survey of Trends in Financial Planning 3 Cerulli Associate, 2007 Cerulli Advisor Survey 4 SEI, The Risk Dynamic Survey of 137 advisors, July Charles Schwab, Best-Managed Firms: It s About Time, Time Management and Organizational Effectiveness, Outsourcing Does it Help?, Financial Advisor magazine, February 2006 * As of 09/30/09 The SEI Advisor Network is a strategic business unit of SEI. The results discussed focused on the experience of a sampling of advisors and are not meant to guarantee any specific outcome or benefit. Individual results may vary. 1 Freedom Valley Drive, Oaks, PA For those SEI funds which employ the manager of manager structure, SEI Investments Management Corporation (SIMC) has the ultimate responsibility for the investment performance of the fund due to its responsibility to oversee the sub-advisers and recommend their hiring, termination and replacement. SIMC is a wholly-owned subsidiary of SEI Investments Company. For Financial Intermediary Use Only. Not for Public Distribution.