TAMP Advisors Go Big as Outsourced Wealth Hits the Mainstream

Consolidation and continual innovation create a now-or-never sweet spot for advisors looking to automate the portfolio without surrendering to robotic competitors.

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While the wealth management pundits spent the last year chasing robots, the rest of the industry quietly kept working on systems that automate the portfolio while leaving the human advisor in control.

The numbers cut through the hype. Pure robo advisors attracted 65% more assets, which is great until you look at the low base and the deep discounts they offer on pricing in order to get those accounts.

Meanwhile, the amount of AUM the firms we profile every year in our America’s Best TAMPs guide tripled off a much healthier starting amount, without forcing anyone to compromise one point on fees. (Download it HERE.)

It’s a great time to hand over the portfolio to high-tech systems. And you don’t have to subject your most affluent clients to nickel-and-dime solutions in order to make it happen.

Turn the key, hit the gas

The TAMP proposition revolves around “turnkey” asset management programs that delegate as much of the routine tasks around the portfolio to a third-party firm.

As far as those broad strokes go, it sounds a lot like handing the accounts to a robot platform. After all, you’re trusting technology to handle the heavy lifting in both scenarios.

But with the pure robo advisors, that’s as far as it goes. It’s like a car that drives itself, for better or worse. With a TAMP, there’s still room for a human advisor behind the wheel.

There’s a world of difference between those superficially similar vehicles. The robo forces your clients to conform to whatever the parameters the programmers thought to bring to the platform. While it’s better than nothing, it’s never going to live up to the tender loving care a seasoned professional can provide.

TAMPs, on the other hand, open up hours in the day to fill with tender loving care. The typical advisor now spends barely 49% of the working week on tasks where clients can actually see the value adding up. Double that capacity and there’s a lot more room for AUM without hiring more people.

Of course clients who can recognize value aren’t going to put up with being handed over to a cookie-cutter solution, either. Northern Trust did a survey back in 2014 and found out that 90% of all investors actually applauded the idea of their advisor delegating tasks that a computer could do.

Those tasks might range from routine rebalancing to populating the entire portfolio. As long as the quarterly performance numbers hold up, high-net-worth investors recognize that half of the advisory package is utility service.

They’ll get it from somewhere and they’ll pay utility pricing. That’s about what the pure robots charge, maybe 20 basis points a year.

The other half of the package is why they pay a human advisor the other 80 basis points.

TAMP giants like Envestnet have crunched the numbers and they’re convinced that a flesh-and-blood advisor focused on the human factors can generate more than 300 basis points of value a year.

That’s counting the financial plan, rebalancing, tax-efficient trading, all the functions that technology can support while leaving room for individual expertise.

Passport to everywhere

Needless to say, the advisor isn’t going to want to step out of the client relationship in any event. Handing the assets to a robot really amounts to early retirement, one way or another.

I don’t think a lot of Trust Advisor readers are ready to walk away. And because of that, it really boils down to identifying what you do better than the technology can.

You’re not a commodity. Your clients get it. FolioDynamix is one of the TAMP providers that gets it.

They’re one of the bigger firms we profile in our guide – “only” $559 billion on the platform, roughly 28 times the entire robot universe put together – but they’re still growing fast.

Advisors are jumping to work with firms like this because they recognize they need a competitive edge but they still want to retain their freedom of operation.

A pure robot locks the doors to the future. A good turnkey solution opens them back up.

“We just want to provide a solid solution in the background that can help advisors and firms do what they do best,” newly hired FolioDynamix president Steve Dunlap explains.

He should know. He’s worn a lot of hats, helping to build a billion-dollar wealth management operation at Cetera, running Lockwood and Pershing’s managed investment unit before that.

“We can give our clients access to that outstanding TAMP resource, only if you want it,” he admits. “While most technology firms can’t offer this, we can -- but just because we have it doesn’t mean you have to use it.”
The RIA custody networks are moving fast to integrate these capabilities into their own platforms. They see the writing on the wall: even the most independent advisors can get more done when they let go.

Adhesion just signed a major deal with TD Ameritrade. Envestnet is working with TDA as well. As critical mass emerges, it’s going to be tough to carve out a competitive position as an advisor who insists on doing everything in house.

About two out of three firms that sign onto TAMP arrangements end up cutting their operating costs or at worst manage to upgrade their offering to world class without raising their overhead.

Look at the money managers on these platforms and they’re truly world class across all asset classes, from the core out to the most esoteric and expensive fringes of the portfolio.

If you’re not providing world-class expertise, I think that’s the real existential question you have to answer for your clients.

The robo platforms do okay. They’re racing the middle of the market to the bottom in terms of pricing, simply because their technology makes it theoretically possible for them to serve infinite assets at a commodity price.

The best TAMP solutions open up the best performance available to every advisor who asks. Fees don’t change. In some cases, they go up. Firm profitability and growth generally increase.

I don’t see expanding space in the market for anything between the top and the bottom. There’s room at the top for those who grab for it.

There’s going to be a lot of room at the bottom with the robots as well, but I don’t think you want to compete for those assets. If you did, you’d already be prospecting low-end accounts as eagerly as you hunt high-net-worth investors who pay for better results.

The TAMP space itself is narrowing fast as winners and losers emerge. Firms like Curian are vanishing, forcing their unlucky partners to make tough decisions on the fly.

We profile the strongest names in our annual guide to the industry. The newest edition is available now. You can download it HERE.



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