Should RIA’s Outsource Their Trading or Hire Internally?

On a sunny November Monday morning in Texas, just 29 weeks into the pregnancy of our first child, my wife and I sat in the hospital eagerly awaiting our doctor to tell us our next step.  The doctor came in and affirmed our suspicions that my wife’s water had indeed broken, saying “Well, you won’t be leaving the hospital until you have a baby”.  What was expected to be just a few days turned into five weeks of living in the hospital until our baby boy was born, healthy, in early December.

This was a very trying time, not just as a family and a new parent, but as the Owner and Portfolio Manager of a multi-advisor RIA.   As all of us who have ever traded accounts knows there is rarely a day off, much less several days in a row.  I quickly realized that the problems we faced were being shared across the country at RIAs everywhere. Simply that there isn’t much of a backup plan if a trader is out of the office and in many cases that trader is the Advisor.

Inevitably, firms will decide how they want to handle trading and portfolio management, and until now, if RIAs wanted to retain full control of their investment strategy, advisors would either need to continue doing it themselves or hire staff.  For the remainder of this write up, I want to explain four reasons why Advisor Logistics outsource solution is superior to hiring staff or an advisor doing it themselves.

  1. Training:

Technologies are developed that can make firms run with a much greater efficiency, yet they are underutilized because of the time and effort it takes to learn them.  Advisor’s don’t have the time to generate business, meet with clients, research investments and spend months learning how to use rebalancing and trading software the way they are intended to run. So, they look to hire someone; thus, leading to the question, how does a new employee learn to use these infrastructures?  Often it is completely on the fly and totally on their own, with the occasional help of the online support staff.  This endeavor ultimately leads to tens of thousands of dollars being spent on buying software and training employees, typically ending in frustration, giving up and reverting to old systems.

When hiring Advisor Logistics, we come as experts already in all software use, there is no training process and no learning curve.  Beyond technical software use, managing portfolios is an art, not just a science, and this art must be gained through many years of bumps and bruises.  Our relationship managers have combined decades of experience as portfolio managers and traders….no training wheels here, no bumps and bruise along the way, just experienced experts right out of the gate.

  1. Staff Cost and Available Talent

When considering hiring staff there are a variety of other considerations besides salary.  As a firm you must consider providing health insurance, vacation days, unemployment insurance etc.  The problem we most often see is RIAs hiring people that are not qualified to be traders because the cost of qualified staff is too expensive.  The first stop for many firms is someone in administration/operations adding trading to their daily operational tasks.  As mentioned earlier, trading and portfolio management is as much an art as it is a science and these employees are not expert enough to be able to handle portfolio management without making mistakes (see point

Another route we see RIAs take is paying one of their advisors who has a smaller book of business, so they get some supplemental income.  This is patchwork and problems will quickly arise when the advisor has a conflicting day of trading and meetings.  Ultimately, RIAs need to hire a full-time trade manager, whose sole purpose is to manage the portfolios, for about every 600 accounts.  This is especially burdensome for firms that live in the major cities, where salaries and cost of living are so high.

When outsourcing to Advisor Logistics, you’ve ensured someone will be available every trading day. You don’t have to worry about all the employee burdens, and your advisors can do what they do best, meet with clients and gather new assets.  We provide a perfect solution for those firms who are priced out of the employment market either because they are in a high cost of living city or they are too small to hire full time.

  1. Continuity and Redundancy

As mentioned earlier, when hiring internally, employees will need to eventually take time off.  At that point firms will need to have adequately trained backup, but this does not solve continuity issues totally.  One glaring problem most firms face is a lack of a true continuity plan for events that may block power to the office and/or city.  In 2017 Hurricane Harvey flooded nearly the entire city of Houston and left people unavailable for weeks.  When outsourcing to Advisor Logistics you outsource to offices in two cities.  Not only do we have staff to provide backup, if one of our office locations is shutdown the other location can pick up the slack.  This same continuity becomes yours when we partner together.

  1. Sharing Risk

The stakes can be very high and one mistake on a large trade can cost a firm thousands of dollars.  Hiring internally does not mitigate this risk in any way, unless a firm decides to have a trade pay for trade errors.  Errors are an inevitable part of the trading no matter how good the system, but when outsourcing trade management, you can outsource some of those risk.  At Advisor Logistics if we cause a trade error we will accept and make up for that error financially.

Wrapping Up

There are cases in which outsourcing trading and other operations doesn’t make sense for firms, but for most Boutique RIAs, outsourcing the trading alleviates many pain points. Especially the burdens of training advisors and new staff, staff cost, talent availability, true business continuity, and trade error risk.   As is often the case, trying times and the realization of problems is what sparks innovation.  We believe that we are offering a service that will change the industry and allow RIAs to be even more free and independent.


Brett Wheeler, CFP®