In-House vs. Outsourcing Your Investment Operations: What RIAs Should Know

"Should we do the work in-house or outsource it?" 

It's a question many investment advisors ask themselves

Since the start of the pandemic, more RIAs have outsourced, as they've re-evaluated their operating models.

Leveraging a third party has it benefits, and similarly, there are costs of not outsourcing.

... but does that mean outsourcing is right for every advisory firm?

Compliance, HR, IT, investment management, trading... there are many facets a business must consider.

And when it comes to this question of hiring in-house vs. outsourcing, we will focus on investment operations.

How Investment Advisors Decide On In-House vs. Outsourcing Operations

1. Identify Operational Workflows

This sounds like a no-brainer, but it needs to be mentioned.

There are many workflows to consider in the middle- and back-office. The first step is to clearly identify and define the tasks at hand.

Is it reconciliation, performance reporting, or billing?

How about data entry or implementing quality control checks?

You won't know if hiring in-house or outsourcing is the better option until you know exactly what those workflows are.

2. Find Out How Long It Takes to Complete the Work... and How Much It Costs

Whether you hire internally or work with a third-party, you should always keep track of your numbers.

Time is quite literally money, and once you see how long it takes (and how much it costs), now you're in a better position to decide.

  • Is the work taking longer or costing more than previously thought?
  • How much value or savings does it bring to your firm when the work is done internally?

Once you can answer said questions, you're getting you one step closer to determining the best course of action.

3. Determine Appropriate Resources and Staffing Levels for Your Operation

Again, when calculating the numbers, you get a better sense of how long and much time it takes to get work done. This also tells you a lot about your firm's internal capacity.

Maybe everything's fine as is, or you need some help.

If thing like reconciliation and performance take time away from higher-value activities, then at that point, the question is how to acquire new talent for your investment operation: hire in-house or outsource?

And if you do need help, how much? What times of the day do you need them? Can they work remotely?

4.  Determine the Level and Value of Middle- and Back-Office Expertise Needed

RIAs might hire an entry-level junior operations analyst, or they require someone with more senior experience.

How much experience do you require for the role? Do you train new hires on your systems and processes?

Just as there are benefits and value advisory firms get, there are costs involved with these decisions.

Though operations work doesn't directly generate revenue, a solid operation is crucial to business success, and the work required is undoubtedly important.

Many investment advisors feel they're in a dilemma. Either they hire better talent but they have to pay more for it, or they spend less money, expecting the hires and their deliverables not to be as good.

The other question to ask is, does there have to be this dilemma? Is it possible to pay less and get better results?

Benefits of RIAs Hiring Internally vs. Outsourcing

Now that we've broken down the points above, you're in a better to determine the best approach.

Here are your consideration points:

When In-House Hiring Is Best for RIAs

If the operational work volume is low, and if the your new hire will be performing other tasks that are higher-value and can't be outsourced, then hiring internally makes sense.

Furthermore, if this work takes up very minimal time for the new hire, then it's best to stick with the traditional hiring approach.

And while middle- and back-office work can be done remotely, some firms may require the work to be done on-site. If that is the case, hiring in-house is the only feasible option.

When Outsourcing Your Operation Is The Best Option

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Making Outsourcing Work

With the right middle- and back-office provider, outsourcing your investment operations can give you that "best of both worlds" scenario. You can lower your costs and get a higher quality of work delivered.

What's more, outsourcing works well for firms when they need help, but not necessarily in the form of a full-time employee for eight hours a day.

Many RIAs often need help for a few hours a day, equivalent to a part-time position. The challenge they face, however, is it's hard to find someone with higher skill sets who is willing to work part-time and at early hours in the morning. You want someone to start the daily reconciliation every day at 5AM and pay them to work part-time with minimal to no benefits? Good luck!

In other cases, larger investment firms need dozens of man-hours worth of help every day. Outsourcing benefits these companies because a third-party provider can give them trained and ready-to-go portfolio accounting experts. RIAs don't have to waste resources recruiting, hiring, training, and replacing staff.

An outsourcing provider is flexible and can take on just a few hours a day or dozens of man-hours. Ramping up or down is a simple process when you outsource.

What about Security and Compliance?

Some might say that hiring internally is better for security and compliance reasons.

That is only true if you've had a bad experience in previous relationships with third-parties.

However, if you partner with an investment operations outsourcing provider like Empaxis, you can still satisfy security and compliance requirements.

For example, a good provider should be audited regularly and attain relevant SOC and ISO certifications, like we have. These types of audits and certifications pass muster with large banks and institutions that also leverage outsourcing.

Given that more RIAs leverage outsourcing, it means the third parties are doing something right, not to mention there is more transparency and accountability in the realm of outsourcing than ever before.

Make an Informed Decision

Every RIA is different. Hiring in-house vs. outsourcing depends a lot on the work itself, how long it takes to complete, how much it costs, what level of talent is needed, as well as internal policies around security and compliance.

The key is to know your numbers, know what needs to be done and then determine who should do it.

As seen above, there are benefits to both approaches. If you're curious if outsourcing might be right for you and firm, feel free to schedule a free consultation with us.


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