As you consider whether and how to incorporate investment management services into your practice, here's an interesting recent article written by Bob Clark of Investment Advisor.

To our knowledge, we are the only firm in our industry that does exactly what he suggests the ideal third—party money manager would do in a perfect world.

Is thirdparty portfolio management the next wave?

Clark says:

The clients need to be yours, not theirs. Because they take discretion over the portfolios, some management services feel the clients are theirs, communicating with them directly, and making it far harder, if not impossible, to fire them. In my view, if a third—party manager isn't a service clearly offered through your practice, you're just asking for trouble. All client contact, and explanations for all changes in client portfoliosor not changing themshould come directly from the advisor.

The cost has to be reasonable. The temptation of thirdparty managers is to charge some ridiculous amount of money for their expertise, perhaps because they do too much work with wirehouse brokers. Even though their cost is part of that "higher fee" which you are well worth, there are limits. Maybe in another ten years or so, I'll change my tune about this too, but 200 bps seems the upper limit on financial advice, and 150 basis points more reasonable.

You need to have some involvement in the investment process. The problem most advisors have with management services is that they lose the ability to have input into the investment process, and to customize client portfolios. Both are important aspects of the services that advisors are offering their clients. Obviously, portfolios need to meet each client's specific needs, and just because you're not managing the portfolio, doesn't mean you don't have good ideas or responsibility for what's in them. I think advisors would have more comfort with thirdparty managers if they had more input to the management process.

It’s just streamlined and simplified things, but not at the clients’ expense, which is a very important element. Clients are even doing better—they’re getting better returns and paying less, and I’m more accessible. That can’t be bad.”

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