SAM News

How Outsourcing Changes the Advisor Role

Posted by Gerard Michael on March 7, 2024


Outsourcing changes the advisor's role and the client experience. Whether this is good or bad depends on your vision of the purpose of wealth management.



Traditional investor-facing advisors rebalance and trade their clients portfolios themselves, especially if those portfolios are customized and tax managed. But advances in automated rebalancing make it possible for the rebalancing function to be delegated to somebody else – either to an in-house central rebalancing group or to a third-party firm. Such delegation (which, for simplicity, we’ll call “outsourcing” whether it’s to a third party or an in-house group), enables firms to deliver to their clients higher levels of customization and tax management, at lower cost and with greater compliance — all while freeing advisors to spend much more time with clients and prospects. 

From the firm’s perspective, that’s pretty compelling. But what does it mean for the advisor? 

Is outsourcing good for advisors? The answer is that it depends on what the advisor thinks their job really is. 


How outsourcing empowers the advisor

Rebalancing through a sub-advisor enables advisors to do more for their clients. When advisors do their own rebalancing, they have to compromise. There simply aren’t enough hours in the day to provide every account with optimized tax and risk management. With outsourcing, every portfolio can get, well, everything: 

  • tax-sensitive transition 
  • year-round tax loss harvesting
  • ongoing risk-sensitive gains deferral 
  • social screens
  • security-level and asset-class-level drift control, and 
  • a daily review of every portfolio to find opportunities to do more for the client 

In a fairly literal sense, outsourcing enables advisors to manage every portfolio as if it were their only portfolio. And with a lot less work. 


How outsourcing limits the advisor 

With all the advantages described above, what’s not to love? The answer gets back to how outsourcing works: advisors deliver customization and tax management by setting preference parameters for each account. In effect, advisors make selections from a (large) customization and tax management menu. They’re not entering trades into a trade order management system.

Because advisors are not directly making trade decisions, it’s difficult for them to talk with clients about prospective trade decisions. It’s even hard (though not impossible) to talk about why individual trades were made. This doesn’t interfere with delivering a customized, tax-optimized solution to clients, but it does change the conversation, away from talking about trades and towards discussing the larger purpose of the client’s investments. Advisors can create portfolios with the risk characteristics that maximize the probability that the client will meet their goals. And they can maximize after-tax returns through active tax management. But they won’t be stock pickers. 

This is disruptive. For many advisors — and for many clients — expertise in picking stocks is what being an advisor means. And for these advisors and their clients, outsourcing diminishes the advisor’s role.


So, does outsourcing empower or limit the advisor??

Is there a single correct answer here? Not really. For traditional advisors – those whose value proposition centers on stock selection – the loss is real. But for advisors who are financial-planning centric, with a strong concern for personalization and careful tax management, outsourcing is a giant step forward in their role and their power. 

The direction the industry is heading is pretty clear — outsourcing (including the idea of “outsourcing” to an internal rebalancing group) will dominate because it efficiently enables wealth advisors to do more for their clients . It is part of a broader industry trend away from a focus on products towards a value proposition based on acting as the client’s lifetime financial coach. We’re not a neutral party here — we are an outsourcing solution after all — but we very much think this is a good thing for all parties. 

We’ve witnessed advisors who have made a transformative difference in their clients’ lives, and in every such case, it wasn’t because they commented wisely on the merits of individual securities. It was because they developed relationships of trust, provided their clients with wise counsel and helped them live lives with greater peace of mind. We hear advisors say things like, “I can’t imagine managing money any other way”. These are the advisors we see who are most excited about what they do. And for these advisors, the answer to the question, “is outsourcing good for advisors” is simple. The answer is yes.

For more on this topic, see Old vs. New Wealth Management. To hear directly from an advisor who has made this transition themselves, read our Q&A style Wealth Advisor Case Study from SAM’s parent company, Smartleaf.


SAM and outsourcing: SAM is a provider of an outsourced rebalancing and trading service that lets you retain control of asset allocation and product choice and provide your clients with high levels of customization and optimized tax management.

Gerard Michael
Gerard Michael

President, Co-Founder