Scott MacKillop of First Ascent Asset Management knows the world of outsourced portfolio services better than most. He says there are two common, but not widely discussed, mistakes that financial advisors make when choosing a TAMP.
First, they downplay asset management. A TAMP can “provide many ancillary services, but the heart of its offering is asset management,” MacKillop said in a recent op-ed.
“It is fashionable to say that asset management is a commodity. Believing that, and acting upon that belief, is a mistake you should avoid. Both you and your clients will pay dearly if you fail to heed this warning.”
The gist of MacKillop’s argument is that there are “wide variations in the results produced by asset managers with purportedly similar risk/return targets.” Citing statistics from the Robo Report, MacKillop notes that there are “material differences in TAMP investment offerings and you can add significant value to your client relationships by paying attention to them.”
The second mistake financial advisors make when selecting a TAMP is to neglect their own fiduciary responsibility.
“... in selecting a TAMP you must act in the best interests of your client. This is another reason you must conduct due diligence to determine the quality of the TAMP’s investment services and the reasonableness of its fees. The law requires it,” he said.
One risk in this area is for a financial advisor to fall in love with the technology or marketing support of a particular TAMP and not pay adequate attention to its performance. “TAMPs can make your firm more efficient, help you grow your business, and support you in many ways, but these are benefits to you and your firm. They are not services that directly benefit your clients,” MacKillop said.
