TAMP 101: What, How, Why

Introduction: TAMP 101

It doesn’t matter whether you’re the CEO of a large wealth management firm or have recently opened up shop as a registered investment advisor (RIA): maintaining and growing your firm’s profitability is always top of mind. With clients increasingly requesting services that go well beyond portfolio management, firms of all sizes are outsourcing their investment management so they can spend more time providing financial planning, prospecting for new clients, and strengthening relationships with their existing ones.

For advisors trying to squeeze extra hours out of the day, finding a reliable, tech-enabled TAMP can be the key to unlocking a thriving and sustainable practice. In fact, more than half of all CFP professionals currently outsource their portfolio management, according to a study by Cerulli.

But for advisors considering—or reconsidering—how a TAMP could fit into their practice, it’s worth reviewing what TAMPs are, how they’ve evolved in recent decades, and what considerations advisors should take into account when evaluating if partnering with a TAMP is the right call.

What is a TAMP?

TAMP stands for Turnkey Asset Management Platform.

TAMPs are designed to simplify investment management for both investors and advisors. But what exactly is a TAMP?

Turnkey Asset Management Programs are tech-enabled platforms that allow RIAs, broker-dealers, asset managers and even CPAs to monitor, manage, and provide back-office support for their clients’ investments and asset allocations. Advisors pay a fee to the TAMP for the investment due diligence, asset allocation decision-making, and execution provided by a TAMP. In turn, advisors save time and energy, allowing them to focus on developing new business and providing better advice across their roster of clients.

TAMPs originated in the 1980s as an alternative to advisors picking individual stocks (or mutual funds) for their clients. In a sign of the times, they were commonly distributed through broker-dealers and the primary relationship in those days was actually between the client and the third-party asset manager operating as the TAMP. The broker who serviced the client typically received compensation for services rendered, usually through the broker-dealer.

As advisors moved away from commission-based products and traditional wirehouses—alongside drastic improvement in advisor technology—the popularity of outsourced investment management grew. Nevertheless, a low degree of choice and flexibility, as well as the expense of early model portfolios, hindered advisor adoption of TAMPs. Even into the 1990s, the RIA market wasn’t big enough to significantly affect how TAMPs were built or deployed.

Fortunately for advisors, that has changed recently.

With the rise of fee-based advice, the erosion of commissions, and a massive increase in the number of RIAs, TAMPs today are far more useful than they were in the past. Modern RIAs generally contract TAMPs as sub-advisors, giving advisors control over how their partner is hired or terminated. RIAs can also contract a TAMP as a co-advisor.

This structure lets advisors claim client portfolios as their own regulatory assets under management, because the RIA is responsible for the primary management of client assets. Investors work directly with an RIA, via the advisor’s investment management agreement. An RIA, in turn, contracts with a sub-advisor, the TAMP, to manage the investment process.

Not all TAMPs are alike. A TAMP can be linked with a single strategist (or affiliated) TAMP or use multiple strategies (through a combination of affiliated and unaffiliated strategists). Advisors can select which strategist and specific model(s) they want to use for their client, turning over the procurement and implementation of the trade to the TAMP.

In other words, an advisor who uses a TAMP is ensuring that the strategy and client’s situation(s) are aligned, and then delegating the remainder of the investment process to the turnkey asset management program.

It is worth noting that not all TAMPs offer the same services and products. Some TAMPs provide a technology suite that is then operated by the RIA, meaning the RIA effects any investment trading or rebalancing for example, after getting guidance from the TAMP. Other TAMPs are more integrated into the RIAs operational flow, and they actually execute the trades with the custodians, feed the data back into the TAMP interface for the advisor to consume, and handle all billing and reporting. GeoWealth falls into the latter category.

Who Should Use a TAMP?

Outsourced investment management continues to be a popular choice for advisors, and it’s no surprise that financial professionals who are most focused on the non-investment aspects of financial advice benefit the most from partnering with a TAMP.

A recent report found that some 54% of CFP professionals rely on a TAMP today and that RIAs are heavyweights in that arena, accounting for more than $93 billion in assets on TAMP platforms.

With clients demanding a wider variety of services from advisors—and advisors providing a range of planning and behavioral coaching—the best TAMPs take their sub-advisor mission to heart. They offer more than investment models and trade support; providing top-to-bottom client support and service, customer relationship management (CRM) technology, as well as conducting the heavy lifting required in the back office.

Advisors need time and energy to support clients across their many needs. Accordingly, an Investment News report found that more than 1 in 4 advisors stated that their primary reason for partnering with a TAMP was to free up time to serve clients. The report also indicated that nearly 24% of advisors turned to TAMPs for their investment management expertise and another 20% rely on outsourced investment managers to control expenses in the event of a market downturn.

How do TAMPs Work?

TAMPs have advanced well beyond mere investment management. Today’s top platforms are flexible, cloud-based systems that include CRM capabilities, household grouping, reporting, mobile applications, advisor and client portals, and back-office support.

TAMPs work by combining many disparate functions and workflows into a painless and affordable outsourced solution. Advisors no longer have to track down multiple sets of forms or client information to pass along to strategists. Instead, they collect and provide a single packet of information containing the client’s strategist or models and pass it along to the TAMP. As sub-advisor, the TAMP then typically handles all processing and investing. That means no more tedious tasks, like aggregation, reconciliation, reporting, and billing.

TAMP-linked efficiencies continue into areas like secure document storage and back-office support.

Client service personnel no longer waste hours on hold, waiting for custodians to rectify any issues that arise. That’s the job of the TAMP. Tax documents, beneficiary paperwork, and client statements? Those are securely handled by the TAMP.

Overall, a TAMP is designed to operate as an extension of an advisor’s office, working quietly and efficiently in the background

What Do TAMPs Cost?

TAMP pricing varies by provider, task complexity, and the expenses of underlying investment vehicles. Often, TAMPs that have their own proprietary technology are able to charge less than TAMPs that rent the components of their platform from other companies since that layers additional fees into the operating structure of the TAMP. At GeoWealth, we provide custom pricing based on each firm’s individual needs and characteristics.

When considering the cost of partnering with a TAMP, it is important to measure against the costs of hiring, training, and retaining an in-house staff. It is often less expensive to use the TAMP as a tech-enabled, outsourced service provider instead of sourcing talent to handle client service, trading, billing, performance reporting, and reconciliation. Also, as AUM grows, so too do staffing needs. The staff of a TAMP can also represent a lower risk of business disruption, since it can be a big shock when an in-house employee leaves the firm.

Why Use a TAMP?

It may come as a surprise to some advisors, but when the number of clients and accounts grows, recurring and maintenance trades often consume an enormous amount of an advisor’s day-to-day time and energy.

In fact, we’ve seen instances of recurring trades hitting anywhere from 70-80% of all trading volume. This is a massive drain on resources for most advisors. Without a scalable, outsourced solution, this situation can create profitability problems even though a firm’s client list is expanding.

In using a TAMP, advisors can reclaim their time without adding salaries or benefit costs to the firm’s overhead. Operational trading costs are reduced, too, as are accompanying service requests that can affect advisor efficiency. Properly structured TAMP partnerships result in costs fluctuating alongside revenue, helping smooth a firm’s financial ratios during periods of market volatility or employee turnover.

Most TAMPs do initial due diligence and ongoing monitoring of the universe of asset managers and model portfolios; the output of that analysis is a curated offering of their high-conviction investment solutions. Plus, TAMPs produce and/or package original market commentaries and analyses on the universe of models featured in what is frequently called a ‘model marketplace’ or menu of vetted investment solutions. All of these items present a time-consuming effort that many smaller RIAs aren’t staffed to do in terms of number of people or qualifications/credentials.

How Should RIAs Evaluate a TAMP?

In addition to understanding their own practice and needs, RIAs who are in the midst of picking a TAMP need to consider the service the TAMP will provide, the technology it has built and is using, the fees it charges and the manner in which advisors will be utilizing their outsourced investment management partner.

Advisors work hard to gain and build the trust of their clients. Their TAMP should be working even harder to expand the trust between it and an advisor.

As an extension or replacement of an advisor’s back office, the best TAMPs provide hands-on, personalized service. TAMP personnel should be providing trading implementation and monitoring through a tech-enabled service center, allowing advisors to view and follow the real-time status of tasks like account openings, new investments, raising cash, trade holds, and liquidations.

Just as an advisor’s practice is continuously evolving, the best TAMPs are known for building and iterating on technology specifically designed for advisors. Homegrown technology, developed in-house, can help a TAMP pass cost savings on to advisors because they don’t have to pay fees to third parties. TAMP technology should be able to handle both new and recurring trades at scale, and should have their own team of in-house technologists and product managers to develop new efficiencies and maintain what they’ve already built.

Fees should be unbundled and transparent. The due diligence workload RIAs face today is daunting. Working with a TAMP should make their practice easier to manage, rather than raise more questions about the fees they and their clients will incur.

There are also several styles of TAMP “wrappers” advisors will need to consider. Most outsourced investment managers share their capabilities regarding each of these wrappers, so that an advisor can choose how and when they’ll deploy their TAMP.

This type of account allows an investor to aggregate assets but separately manage different “sleeves,” or asset groupings.

For households with multiple individuals, such as children, grandparents and parents, TAMPs can handle the investments of the entire household within a single structure.

As RIAs turn to financial and estate planning, behavioral coaching, and other non-investment management related value propositions, TAMPs are well positioned to help advisors keep client financial goals on-track and their investment management operations working smoothly and at scale.

As a leading TAMP for advisors, GeoWealth is here to support you and your business, supercharging your growth and profitability.