Amid the market turmoil last year, TAMPS (turnkey asset management programs) in the US continued to experience AUM growth in 2022.¹ And industry leaders expect that trend to continue through 2023 and beyond.² Advisors who might have been holding out exploring TAMPS, instead preferring to manage their client portfolios manually, may have reconsidered during last year’s market environment. And for good reason.
The value advisors deliver — and the expectations investors have — has experienced a marked shift toward comprehensive wealth planning and personalized experiences. As a result, the investment management aspect of the advisor/client relationship has become just one part of a bigger picture.
It’s widely known that TAMPs provide a slew of advantages for independent advisors, most notably freeing up time to focus on delivering better, more personalized services and client experiences. A win for clients but also a win for advisors with TAMPS offering access to expanded capabilities and expertise, more time for relationship management, prospecting and business building, more time for skill development, and an improved path for succession planning.
But — there’s always a but — there’s a cost associated with these benefits. According to a Kitces article, TAMPs have traditionally cost anywhere from starting around 75 basis points and higher, depending on the size and services offered. But a wave of next-generation, more passively-oriented TAMPs are setting costs much lower—anywhere from 50 to as low as 30 basis points for larger RIAs, depending on the level of services provided.³
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So is the cost of working with a TAMP worth it? There isn’t a simple, one-size-fits-all answer because most RIAs are not one-size-fits-all. Advisors should carefully take assess all the processing, technology, and administrative fees they are currently paying and weigh those against their overall revenue. If there is an opportunity for firms and advisors to effectively lower their operational expenses by partnering with a TAMP, the cost may very well be worthwhile. There are a few key areas to consider when deciding whether or not a TAMP is worth the investment:
The Cost of Managing Client Assets
Managing client investments takes up a significant portfolio of an advisor’s time. Manager due diligence, portfolio construction, opening accounts, executing trades, managing paperwork and the administrative nature of managing existing client assets can, depending on client load, handcuff an advisor’s ability to grow.
Working with a TAMP for investment management, advisors can research strategists that would be suitable for clients, run investment proposals, open accounts and support clients with performance reports. Advisors play a major role in helping clients choose investment strategists with the TAMP and then the strategist manages the assets.
For many advisors, that level of separation from the actual investment performance is a welcome sharing of accountability among the advisor and strategist. In an environment like we experienced in 2022, when clients experienced underperformance, it’s likely easier to evaluate and switch out strategists vs. firing their advisor.
The Cost of Building (and Maintaining) a Comprehensive Tech Stack
As an advisor and business owner, you can choose to build and implement your own tech stack, hire someone to manage or oversee your tech systems for you, or outsource your tech by partnering with a TAMP.
Many TAMPs in the marketplace today offer robust technology platforms that can help streamline more than investment management but also business processes like opening new accounts, performance reporting, and recordkeeping.
Building and maintaining a complete tech stack is a significant undertaking for most firms, but especially for smaller RIAs. It takes expertise, sometimes in the form of an outside vendor, consultant, or in-house staff. And it takes multiple systems that must be able to be integrated, that must work together cohesively, and must support the client experience. And all of those systems must be maintained, updated, and be flexible enough for growth. Pieced-together systems are more likely to encounter issues with processes and workflows.
TAMPs that offer a full system from the ground up often do so with “bundled” pricing that is more affordable, for even smaller firms. Complete operational platforms are accessed through a single interface and in some cases, functions can be customized to meet a firm’s specific needs.
Much of a TAMP's effectiveness will hinge on the ability of its modules to work in concert or integrate. Functions that are not natively engineered with a shared database often end up clunky and error-prone, leaving an advisor with an integration that falls flat.
On RegTech
One important area to consider when it comes to in-house or outsourced technology platforms is compliance. A TAMP tech platform likely already has integrated RegTech as part of their offering, which should also be factored into the cost evaluation. In short, is the cost of working with a TAMP worth having access to RegTech software that keeps advisors and the firm compliant with ever-evolving regulations?
The Cost of Growing the Business
For growth-focused advisors and firms, being able to streamline business operations and improve client experiences is a worthwhile endeavor. Time-consuming investment management duties, along with other operational responsibilities of running a business can cripple growth potential. Advisors spending all of their time managing existing clients have no time left in the day to prospect for new ones, pursue other strategic business initiatives, or bring in new talent to expand the firm.
By partnering with a TAMP and shifting some of that work to an outside provider, advisors can be freer to focus time on those things that will bring about growth. Operational costs will always be a factor for businesses but finding the right TAMP — one that offers a customizable offering and that is robust and flexible enough to grow along with the firm — can help create scale and drive growth for firms.
Making a Decision
Whether or not to work with a TAMP is a big decision. The benefits are clear (read our post on the Top 9 Reasons Why Advisors Should Outsource to a TAMP) but cost is a big factor. The key is finding an equitable balance between affordability and the services offered. Be sure to understand:
- The types of strategies available
- The lineup of investment strategists
- The total costs involved
- The technology used and if can be integrated with the tech you already use
- The tools and services offered by the TAMP to help advisors grow their business
- What the service will be like
- If the offering is customizable to your firm’s individual needs
Experts suggest creating your own checklist when researching TAMPs to help build out a full cost analysis. That’s why we put together this whitepaper to walk you through how to evaluate the available technology and investment options available to your firm and identify the one best suited to support long-term growth.
Whatever you decide works best for you, Orion can help your firm grow and scale your business with a complete suite of investment and operational services, customizable to your firm’s needs.
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¹Source: Best TAMPs Grew 67% on Average in 2022 While Markets Erased $6T in Investor Wealth, TAMPS.com Reports, PR Newswire, January 2023.
²Source: Skip Schweiss: 2023 Is the Year of the TAMP, ThinkAdvisor.com, January 2023.
³Source: Why TAMPs And Outsourced Investment Management Are The Future For Most Advisors, Kitces.com, February 2018.
⁴Source: 2023 America’s Best TAMPs – Best Technology and Best Model Market Marketplace.