TAMPs are turnkey asset management platforms that provide asset management services for financial advisors. The ability to outsource investment management tasks has many advantages, as some advisors learned firsthand this year.
“When the markets dropped in March of this year, for many advisors it meant implementing a business continuity plan and figuring out how to connect with clients and prospects remotely through tools such as Zoom,” says Jeremy Heffernan, a vice president of Wilshire Associates.
“For those advisors who weren’t outsourcing to a TAMP, they were also saddled with determining the appropriate asset allocation, rebalancing portfolios and researching which exchange-traded funds or mutual funds to trade, all functions that they could offload to investment strategists through a TAMP,” he adds.
Even before the pandemic, TAMPs were experiencing rapid growth, “driven by the expansion and changes in the wealth management industry,” says Noreen Beaman, CEO of Brinker Capital. “Independent and self-directed channels continue to gain share with the migration of financial advisors from wirehouses to more independent, fee-based advisory models.”
This drive to independence, along with a desire to focus on holistic financial planning and devote more time to clients and prospects, is leading more advisors to use TAMPs.
What are TAMPs?
“TAMPs are technology platforms that provide financial advisors with access to investment strategists,” Heffernan says. Through TAMPs, advisors can invest their clients’ assets and access tools of the trade, such as risk profile questionnaires, proposal generation software, performance reporting and billing support.
“One can think of a TAMP as a marketplace for investment strategists, with financial advisors being the buyers, investment strategists being the sellers and the TAMP managing the store,” Heffernan says.
Through the market established by a TAMP, advisors can “research which strategists would be best for their clients, generate investment proposals based off of the strategists they’ve selected for their clients, open client accounts and continue to service their clients with performance reports.”
The cost for all this outsourcing typically ranges from 0.45% to 2.5%, depending on the complexity of the program, services provided and expenses of the underlying investment vehicles, Heffernan says.
Advantages of TAMPs
TAMPs come with several advantages, perhaps the biggest is that they give advisors more time in their day.
“Advisors are faced with high costs of reporting, compliance and back-office administrative functions while managing growth,” Beaman says. “Advisors who view an outsourced provider as an extension of their practice are able to devote more time toward deepening existing investor relationships and prospecting.”
The ability to go deeper with existing clients is key as clients are pushing for more holistic financial planning. “To provide a wide array of planning advice, financial advisors need to spend less time on activities that they can outsource to experts, with capabilities greater than their own. And so having a TAMP that provides them with access to these experts is a beneficial resource,” Heffernan says.
TAMPs can also give you more time to prospect for new clients, an activity that is only getting harder in a no-contact world. “Financial advisors on average are in their mid-50s, with many in their 60s and 70s, a high-risk category for COVID-19,” Heffernan says. “Finding ways to meet with prospects is potentially risky, not easy to do and can be time-consuming.”
Advisors who outsourced investment management through a TAMP had more time to learn the art of Zoom and virtual client prospecting, helping them adapt to the new laws of interaction.
TAMPS can also help with succession planning for advisors. “The more procedural-based your practice is, and the more linear operational functions your practice runs on, the more attractive your business will be to a potential buyer,” Heffernan says.
Disadvantages of TAMPs
TAMPs are not without their disadvantages, however. One potential downside is the fact that outsourcing to a TAMP requires advisors to relinquish some control over how their clients’ assets are managed. While advisors still play a role in helping their clients ‘ investment strategists through the TAMP, once hired, the strategist will typically control how the assets are invested, Heffernan says.
This loss may not be so great given that advisors, especially those of the holistic advice category, are now serving a more consultative role for their clients. Plus, they aren’t under the gun for underperforming investments.
“If the financial advisor was managing the money for the client, the advisor is generally inclined to defend their performance even when it underperforms for long periods of time,” Heffernan says. “In other words, FAs don’t typically fire themselves. If a strategist underperforms, the advisor works with the client to identify a new strategist for the client.”
The level of due diligence you do in helping clients select their TAMP investment strategist can also help mitigate the control you lose over the ultimate investment management.
How to Choose a TAMP
As far as your clients are concerned, the TAMP you choose will become a reflection of you and your investment philosophy. If the TAMP underperforms, it will fall to you to defend the strategist or to admit a bad choice and start the search again. As such, it pays to do your due diligence before partnering with a TAMP strategist.
Heffernan cites six factors to consider when selecting a TAMP:
— The types of strategies available.
— The lineup of investment strategists.
— The costs of the programs.
— If the TAMP can partner with FAs to help them grow their business.
— What tools the TAMP will provide to support an advisor’s business.
— How the TAMP will integrate into other technology programs that the advisor is already using to support and grow her business.
To ensure you are careful in selecting a TAMP, Heffernan recommends creating your own checklist or questionnaire that you can use in your due diligence process. This will also help you “easily compare prospective TAMP partners in an equitable fashion,” he says.
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Correction 09/09/20: A previous version of this story misidentified Michael Alexander and Jeremy Heffernan’s names.