What Is a TAMP and How to Choose One

TAMPs are turnkey asset management platforms that provide asset management services for financial advisors.

Recently, they’ve experienced rapid growth driven by expansion and changes in the wealth management industry, says Noreen Beaman, president of Orion Advisor Solutions. “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.

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What Are TAMPs?

“TAMPs are technology platforms that provide financial advisors with access to investment strategists,” says Jeremy Heffernan, a vice president at Wilshire Associates. Through TAMPs, advisors can invest their clients’ assets and access tools of the trade, such as risk profile questionnaires, proposal generation software, performance reporting, financial planning tools 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,” Heffernan says.

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.

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Advantages of TAMPs

TAMPs come with several advantages, including:

Ability to outsource to experts with greater capabilities. “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,” Heffernan says. “And so having a TAMP that provides them with access to these experts is a beneficial resource.”

More time for relationship management, prospecting and other business improvements. TAMPs can give advisors more time to focus on specific duties. “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.”

More time to improve personal business skills. During the coronavirus pandemic, for example, 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.

Better succession planning. “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.

Less accountability for investment performance. With TAMPs, advisors may not be 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, (financial advisors) don’t typically fire themselves. If a strategist underperforms, the advisor works with the client to identify a new strategist for the client.”

[READ: Will More Advisors Shift Client Assets From Mutual Funds to ETFs?]

Disadvantages of TAMPs

TAMPs are not without their disadvantages. Some drawbacks to TAMPs include:

Less control over client asset management. 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 select investment strategists through the TAMP, once hired, the strategist will typically control how the assets are invested, Heffernan says.

Distance from the technical aspects of investing. If your passion lies in market and investment research, and you enjoy the technical side of investment management, outsourcing this part of your job may not enhance your overall job satisfaction.

Cost. TAMPs are not free, and the costs and services provided can vary by company. You should do careful due diligence before choosing a provider to ensure you and your clients are getting the best value for the cost.

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 financial advisors 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 while researching options. This will also help you “easily compare prospective TAMP partners in an equitable fashion,” he says.

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What Is a TAMP and How to Choose One originally appeared on usnews.com

Update 08/12/21: This story was published at an earlier date and has been updated with new information.

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