Why IT Outsourcing is the “It” Thing for Advisors

Jul 5, 2016

Helpful info re: IT outsourcing landscape for #advisors @SEIRaefL Click To TweetOutsourcing

We’re always looking for the next big thing coming down the pike. At the end of 2015, I felt confident that for 2016, that thing would be cybersecurity. Then came the DOL rule – and everything else was washed away, as our industry readies itself for April 2017 (when plans must be in place). So maybe 2017 will be the year of cybersecurity, in which case, by investing time reading this blog post now, you will be ahead of the curve.

We researched cybersecurity, and found that for advisors, it is a scary, potentially expensive issue – but one that can significantly reduce the risk of your clients’ data being breached. In our analysis, we unveiled a hidden world not often visited by many advisors – IT outsourcing. This is a positive world, which can give an advisor a lot of their wasted time back, and help them sleep better at night.

What is IT outsourcing?

Information technology (IT) outsourcing is finding a company to subcontract some or all of your office technology. This includes the support of all of your desktop computers, laptops, servers and all of the policies and procedures for their setup and maintenance.

It can be broken into the following sections:

  • Cybersecurity. These are the policies and procedures to help ensure that no one can hack into your systems and access your data. It includes procedures that you should follow, technology to assess if you are at risk (vulnerability scanning), and technology remediation to fix any vulnerability. A good IT outsourcing company will also prepare you for any audits by the SEC or other regulatory bodies.
  • Technology strategy. This is an initial review of all of your technology infrastructure and the creation of a roadmap (plan) of how you should change. A big part of this plan is whether you should go entirely to the cloud (all of your software applications are run remotely on someone else’s hardware), or local (you have servers at your site that you maintain), or a hybrid (a mixture of the two). This service is the equivalent of having a virtual chief technology officer (CTO).
  • Technology implementation. Once the strategy is in place, it needs to be implemented. This can take anywhere from a few weeks to a few months. When in place, your team is trained on your new technical environment and how to make the most of it.
  • Technology support. Instead of someone in your office spending half of their time fixing computers, you have a phone number, which any of your staff can call when there is a technical problem. A remote technician can then identify and fix issues. Support includes capabilities such as archiving of client interactions (an important SEC and FINRA requirement) and a business continuity plan, in case you are struck by a calamity in your area, but still need to run your business. Hurricane Sandy was a good example of an event that put great stress on a number of firms’ continuity plans.


There have been many high-profile cases in the press recently of systems that have been hacked, and data taken. This has included Sony, Home Depot, Target and JP Morgan Chase. The SEC has a unit called the Office of Compliance Inspections and Exams (OCIE) that has researched the cybersecurity of registered broker-dealers and investment advisors. They found the following:

Illustration 1

We see that many firms have obtained a written security policy from different sources, but there are few that live by them on a daily basis. We also have found that although 74% of advisors have experienced cybersecurity attacks, most do not know about them! It is only when there is a technology review performed that this is exposed.

The OCIE investigated a number of firms and, in a few high-profile cases, fined firms that they determined to have failed in their cybersecurity responsibilities. With cybersecurity’s high profile, it is very likely that firm audits will continue.

IT outsourcing statistics

In March 2016, SEI surveyed 506 advisors. We asked: “Do you outsource your office technology and technology support?” 49.6% said yes. This seemed high to us until we asked the advisors who said they outsourced a follow up question: “Who is your technology outsourcing partner?” The answers were:

Illustration 2Industry outsourcers are professional organizations who focus specifically on IT outsourcing, like the firms outlined in the next section. The total percentage of advisors who use industry outsourcers is 8%. The graph also shows that 74% of advisors outsource to a local company. This can be anything from someone’s brother who “knows” about technology, to a firm that fixes computers, to a firm doing full support of an advisor’s systems. This is the current state of the industry. You also see that some BDs have identified this issue and are helping their advisors.

Outsourcing IT firms

There are a number of firms in this space. Here are a few who have made financial services a focus of their services:

We found some similarities among these firms:

  • Client focus. All of these firms have a startling client focus; they would do anything they could to ensure that their clients’ lives were unaffected by technology glitches. As a result, the turnover rate of clients is amazingly low. Once these relationships are in place, they tend to stay in place for multiple years.
  • Robust offerings. Although all of the firms are fairly new (most have come into existence in the last 10 years), they have built comprehensive, highly packaged offerings. Advisors like simplicity and the companies have taken what is a complex service and made it as simple for an advisor to understand as possible.
  • Work ethic. In working with these companies, I have occasionally ended up talking to them about their services late at night. These are hardworking firms and it shows in the reliable project plans they put in place and the long hours of service they provide.
  • Little marketing. As stated earlier, this is an area of our industry that is not well known. All the firms say that referrals have driven their growth and it is only in the last year or so that you have started to see these firms at conferences or in advertisements.

We also found some differences:

  • Cloud vs. local. Some firms focus primarily on the cloud. Their goal is to move an advisor firm into the cloud and then have a consistent way of supporting their clients. Other firms are willing to support clients’ servers at a client site.
  • Advisor focus. Some firms have identified a niche of financial advisors. Others are focused on the financial services area, whilst others have a financial services practice.
  • Proprietary desktop environment. Some firms have a proprietary desktop environment, as they feel it allows them to manage a client more reliably. Other firms are more invisible to the user and do their management behind the scenes.

How one IT outsource firm does it

In July 2015, we told the IT outsourcing story of Strategic Financial Advisors. They used ITEGRIA, which was founded in 2007 and is a nationwide company currently supporting about 100 clients. ITEGRIA focuses only on financial advisors.

“The IT outsourcing business is booming,” said Richard Mabbun, ITEGRIA’s CEO and founder. “We carefully onboard new clients, always ensuring that we have the scale and the service to support them. That is the key to success in this industry. While all businesses use computers and networks, not all firms use them in the same way. We’ve already seen these different models, which is a win for everyone involved. We have not focused on marketing to date, having always had a terrific referral base. We will be more visible next year and I think you’ll see many more advisor firms receiving the benefits of IT outsourcing.”

Check it out

It is easy for advisors to get dazzled by the latest gizmos to wow clients. And so they should – revenue-generating technology is exciting. However, the expense and operations side is how advisors scale their business, and IT outsourcing is a major, unheralded tool in this area. What’s more, it helps you sleep at night.

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Raef Lee

Raef Lee

Raef Lee is the technology contributor for Practically Speaking and also serves as a managing director for the SEI Advisor Network.

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