Demand for turnkey asset management platforms continues to grow among financial advisors
Turnkey asset management platforms are gaining ground with a broad spectrum of financial advisors – from industry veterans looking for a way to institutionalize their businesses for succession to Gen X planners who see technology as integral to work and life itself.
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In 2017, Tiburon Strategic Advisors estimated that TAMPs held $2.2 trillion in assets under management and administration. They serve 180,000 financial advisors (up from 800 in 1995) and 3.9 million clients (up from 10,000 in 2001).
Tiburon Strategic Advisors projects strong growth over the next several years as well. By 2019, TAMPs will serve 4.5 million clients and $3.9 trillion in assets under management and administration, a three-fold increase since 2014.
Deborah Fox, the CEO of Fox Financial Planning Network, was in business for three decades before moving to a TAMP. “We were doing our own portfolio management, typically a portfolio of mutual funds with model portfolios, and then when TAMPs became available I thought it was a very interesting concept and certainly was open to off-loading that work if it made sense,” says Fox. “But looked at hundreds of options and pretty much after my first question, it would be a no, no matter how good their process was, because they were too expensive.” Last year, she signed on with the flat-fee TAMP First Ascent, which charges $500 per account with a $1000 household maximum.
By contrast, Dwight Dettloff, CPA, of Winding Trail Financial Planning, who started his firm last year, has never operated without a TAMP. He explains, “My value is in the guidance, accountability, and motivation that I bring to clients, not whether I can pick the next Apple or Amazon. Using a TAMP solves a couple of main problems. First, my clients receive expert portfolio management and second, my time is freed up to work on other tasks whether they be client, internal, family or business development related. The TAMP also helps take care of some of the necessary administrative paperwork that would otherwise be necessary if using a traditional custodian alone.” He set up his firm on the Betterment platform last year.
Both established and new advisors have similar goals – providing value-added services and developing relationships with a growing book of clients. “Advisors are facing challenges and opportunities obviously to provide more and more services to baby boomers as they are in or approaching retirement. They’re faced with the challenge of how to scale their firms,” says Eric Clarke, the CEO of Orion Advisor Services. “And so, as they look to grow their businesses oftentimes firms will look to deploy technology to help them scale and, in some cases, they’re looking to outsource business functions to a turnkey asset management provider. “
Model marketplace vs. total technology solution
Clarke’s Orion is not a TAMP itself, though it is affiliated with two TAMPs, FTJ Fund Choice and CLS. However, it is a provider of a full-stack of advisor technology, including portfolio accounting, reporting, trading and billing and linked through sister companies to core TAMP services. Tiburon Managing Partner Chip Roame notes that what his firm called “platform TAMPs,” that is, broad-based technology platforms, are growing much faster than “product TAMPs,” or pure investment solutions.
“Platform TAMPs have emerged rapidly in recent years to rival the traditional financial advisor workstations as the core technology component for the next generation of fee-based financial advisors in both the independent and captive channels,” he explains.
The proliferation of technology solutions means that the TAMP industry is both consolidating and fragmenting, depending on where you look. Will Trout, head of wealth management at Celent, says that “At the very top, it’s a scale game. You’ve got like Asset Mark and SEI at the very top, with a bunch of small players in this space, and TAMP margins are under pressure. Yet you also have the emergence of technology competitors – tech firms like Orion and Riskalzye who offer model marketplaces.”
“Orions, the Riskalyzes and the Oranjs all offer a full tech stack -- from onboarding to CRM to portfolio management, so they’re increasingly competing with the big boys,” Trout continues. “They will offer investment solutions, these model marketplaces that the investor can then purchase a model off the shelf and then customize it for his end client.”
The solutions advisors seek, often, aren’t limited to portfolio management, but rather extend to the whole middle office—everything that supports their interactions with clients. “On the operational efficiency side, advisors are looking for solutions that will make their trading and reporting practices be more efficient but they’re also looking for technology proposal tools, onboarding tools risk assessment tools that will help them close a prospect and be able to show the value-added services that they’re providing to a prospect to get them onboarded quickly,” says Clarke.
New pricing structures
Tiburon Strategic Advisor counted 46 TAMPs serving financial advisors in 2017; it’s a competitive market that favors innovation. The upcoming 2019 edition of our America's Best TAMPs guide contains about half of them -- the most dynamic platforms, managing the lion's share of the assets.
Scott McKillop’s First Ascent set up shop in this crowded field June 2016, but just over half a year later, developed a flat-fee pricing structure that differentiates his firm from its competition.
“We provide outsourced portfolio management just like other TAMPs do, but we do it on a flat fee basis. Instead of charging a percentage of assets under management, we charge $500 a year per account and then we have a $1000 household cap,” says McKillop.
“Technology has evolved so that it really doesn’t require any more work or effort to manage a $4 million account than it does a $400,000 account,” he explains. “The logic escaped me as to why we were still charging that percentage of assets under management.” As a start-up, First Ascent was able build a very cost-efficient technology infrastructure to support a streamlined investment process that builds core/satellite portfolios with limited positions and minimal turnover.
The flat fee structure appeals to financial advisors who, themselves, work on a fixed-fee basis. Amy Irvine, founder and CEO of Irvine Wealth Planning Strategies, says that two factors drew her to the First Ascent platform. “That they were the most flexible of all of the portfolio managers that I interviewed. They did not require me to liquidate all of the positions to go into the system. So that was huge to me,” Irvine explained. “But the second thing was that their flat fee schedule was very attractive to me because a big chunk of my fee is a flat fee, a very big chunk of it. So, from a client alignment perspective, I felt like the clients would get a better, lower fee structure for their services. It seemed like our missions were very similar.”
TAMPs free financial advisors from investment and back office chores so they can do more complex, in-depth estate and wealth planning, often employing trust structures. But these same trust structures make tax planning particularly important, since trusts are taxed at high marginal rates.
“Certainly, on the technology side, on the trading side of the technology that we offer, we’re always trying to help our advisors add tax alpha for the trust accounts that are in the, essentially, the highest tax bracket,” says Orion’s Clarke. “Our trading technology helps add tax alpha through automated asset location and tax loss harvesting.” FTJ Fund Choice, acquired by Orion in April, offers the Advisor Strategy and Tax Return Optimization (ASTRO) tool to automate decisions like which assets to hold in tax-deferred vs. taxable portfolios and when to sell positions to lock in capital losses.
TAMPs and succession planning
For advisors nearing the end of their careers, TAMPs offer a way to institutionalize a financial planning practice, ensure a smoother succession and generate a higher value when sold. “If you’re an advisor and looking to sell your business five to ten years from now, you don’t want your differentiator to be investment management, because that’s typically not a process that can be replicated once you leave,” FTJ Fundchoice’s Cooke explains. “We’re starting to see more and more advisors gravitate to a platform like ours and use specific strategies to design client portfolios. Then it’s easier for another advisor to step in and solve the financial problems on behalf of clients.”
Amy Irvine agrees that succession planning played a role in her decision to use a TAMP. “It allowed me to grow the practice to be more sustainable in the long run,” she says. “If something, god forbid, ever happened to me, there’s someone who can step in.”
Not right for every practice
Most experts see continuing growth ahead for TAMPs, as more and more advisors jettison the nitty gritty of portfolio management to focus on advice and relationships. Yet there will always be some who keep portfolio management at the center of their businesses. Jason Leder, fiduciary advisor and chief investment officer at Houston-based Leder Fiduciary Capital, has been picking stocks for his whole career (he was a portfolio manager at Van Kampen’s Comstock Fund for two decades) and isn’t about to stop now. Advising a mix of very high net worth, high net worth and middle-income clients, he says he spends about 40-50% of his time on investments.
Asked if he thought he could make more money by outsourcing, he flatly rejects the idea. “I’m not some natural whiz-bang marketer,” he explains. “Most of the people who come to me are people who know me and referrals.” And the burden of managing portfolios and keeping up with back office chores? “That’s not really that hard. I use Schwab as my custodian and they handle a lot of stuff and then physically entering transactions just hasn’t seemed that onerous to me.”
Practically the status quo
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A few of the startups hitting our screen this year are 3D, Cornerstone, Lindner and others. A lot of them are companies with deep experience in direct advisory roles. They built the platforms for their own clients, then discovered that there was a bigger business opening that architecture to other advisors.
Now they're in the background, leaving you free to work with your clients with a whole lot less operational drag while they tend to the unseen details.
With trillions here, this is the center of gravity for the industry in the future. The only question we have is whether you're going to be there with us.
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