A deeper dive into the value of outsourcing

At Vestmark, we suspect that overwhelming advisor satisfaction with outsourcing reflects the impact of outsourcing’s value. With that hunch in mind, we uncovered at least four areas in which outsourcing improves the toughest challenges advisors face: seizing tax loss opportunities, customizing portfolios at scale, onboarding efficiently, and budgeting taxes transparently and precisely.

Enabling tax-loss opportunities

In a game in which it’s all about the net, we believe seizing tax-loss opportunities can be critical for overall portfolio performance.

We sometimes forget that taking the tax loss itself is only half the battle; the other half requires reinvesting the proceeds into a comparable investment to maintain the portfolio model. This process of optimization requires thousands of complex calculations to find matching risk and return characteristics, typically accomplished with help from an optimizer. Optimizers are generally too expensive for advisors to access on their own; outsourced services can provide the optimization necessary to turn client tax losses into viable opportunities for pursuing portfolio objectives.

No need to sacrifice customization for scale (or vice versa)

In our view, your greatest advantage lies within your clients themselves. You know their goals, fears, capabilities, and aspirations. Much of your value depends on your ability to apply the abstractions of financial responsibility to the personal and practical needs of the real people you work for. And frankly, the greater the net worth of the client, the higher their expectations for customized approaches.

The problem is time: it takes a lot of it to craft a customized portfolio. Advisors have usually faced a dilemma: should you focus on customization to create greater value and competitive distinction, or should you concentrate on scale, leveraging volume to grow your practice?

Through outsourced services, you can do both. Today, technology and outsourced services can fulfill personalization at scale, allowing you to include investment approaches – such as direct indexing and separately managed accounts – that would otherwise be practically unavailable for independent advisors.

Offloading the onboarding burden

Getting a new client can mean ready, set…STOP. Because the number one barrier to successful onboarding is absorbing the tax consequences of the changed investment model.

How will you manage the transition for minimal tax consequences? How easily can you identify which lots to sell, which to keep? Qualified outsourced service providers can not only provide complete visibility into the entire portfolio but can analyze the tax consequences of multiple scenarios as well.

In fact, Vestmark’s platform produces a transition analysis advisors can share with clients to help them weigh various approaches and arrive at the most amenable transition plan. Look for outsourcing partners that can deliver customizable reports that eliminate manual spreadsheet work and enable trust-building conversations with clients.

Transparent Tax budgeting

Facilitating tax goals, customization, and efficient onboarding all require honest, accurate forecasts of costs. How much might the client realize in capital gains this year? What can be set aside?

An outsourced partner can quickly illustrate your suggested investment strategies with easy-to-read, client-friendly transition analyses. These can be tailored to you and your client’s personal inputs including investment vehicle, asset allocation, investment customizations and personalized tax settings. Precise, timely analyses from an outsourced partner can help you serve many clients in a personalized way, without overwhelming your workload with hours of data assembly and number crunching.

Can you afford not to outsource?

Let’s go back to The Impact of Outsourcing report. Out of 750 financial professionals surveyed, a staggering 99% reported achieving business improvements through outsourced services:

• 91% experienced growth in total assets
• 84% enjoyed higher business valuation
• 79% lowered their operating costs
• 83% increased their personal income

You might be wondering: Won't outsourcing cost me control of my client relationships? Not at all. Vestmark wants your business, not your clients.

Vestmark serves you, the advisor. If the potential advantages of outsourced services sound appealing to you, let’s talk. You’ll be surprised at how liberating – and inexpensive – excellent outsourcing can be.

1. The Impact of Outsourcing, AssetMark, 2022

There are several investment-related risks associated with tax loss harvesting. There is potential that the tax loss harvesting may:(i) negatively affect the overall performance of an investor’s portfolio; and (ii) result in a temporary overweight and/or underweight of certain sectors, securities, and/or cash in an investor’s portfolio that influences performance, and VAS will not consider any other account that the investor may have. Tax-loss harvesting involves therisks that the new investment could perform worse than the original investment and that transaction costs could offset the tax benefit. VAS may repurchase securities after the end of the tax loss “wash sale” period at a price higher than that for which they were sold. Securities sold for the purpose of tax loss may or may not be repurchased by VAS following the 30-day wash sale period. VAS cannot prevent wash sales that may occur in other accounts besides the account to which the tax loss harvesting was applied. Furthermore, VAS cannot prevent wash sales that may occur due to investor or financial advisor requests that impact trading in the account.