Advisors Growing Wary of TAMPs, Analysts Say

Assets in turnkey asset management programs have grown significantly in recent years, but new investment options threaten to put an end to the party.

With new asset allocation models and robotics-themed portfolio tools, analysts are debating whether there is still a viable place for third-party, turnkey asset management programs at investment advisory firms.

TAMPs, which allow advisors to outsource management of some or all of their clients’ assets, went on a remarkable run from 2011 to 2015. TAMP assets rose from $147 billion to $1.75 trillion in that timeframe, according to Tiburon Strategic Advisors.

An estimated 25 percent of investment advisors turned to TAMP products and services during that time, Tiburon reported.

But although advisors warmed up to third-party asset management services, and enjoyed the increased free time they had to focus on their clients, growth has leveled off in the past year.

That’s primarily due to fintech-themed alternative products like robo-advisory services, which increasingly handle traditional trading and managing of client investments that back offices used to own.

Also edging into the advisory offices’ inner circle are so-called “model marketplace” products -- centralized asset management platforms where money managers can choose from myriad third-party investment options, yet still control the trading themselves.

That presents a question for wealth managers: are traditional TAMPs going out of style? If not, is there still a prominent place for them at the advisory industry table?

‘Very Useful’

Ask several experienced investment experts, and you get different responses. One thing is for sure, though, the most compelling response is steeped in current U.S. consumer demographics.

“TAMPs are very useful to the advisor but not necessarily to the client,” said Saleem Khatri, co-founder of the San Francisco-based Instavest. “There is a place for third-party TAMPs in the marketplace as long as the baby boomer generation still holds the majority of wealth in the United States.”

TAMPs still work today because most advisors will (and should) spend 80 percent of their time gathering assets or setting appointments to earn their fees.

“Utilizing a TAMP is a no-lose proposition for these advisors because the advisor can offload a mundane investment responsibility,” Khatri said.

That level of outsourcing is made easy because most clients need only a basic index fund portfolio, which requires minimal effort on the part of the advisor, he said.

“Now the advisor has to time and opportunity to sell other products, like annuities and insurance plans and grow his or her business through prospecting,” Khatri said. “Customers are happy because their needs are being met and they have an advisor to call in case of a question.”

This arrangement works with baby boomer and Generation X. It does not work, however, with the millennial generation, Khatri said.

“Millennials are more comfortable utilizing robo-services, which is essentially a TAMP, and don't feel the need to actually talk to an advisor,” he said.

The Counter View

Some select, heavy-hitting third-party asset managers disagree with that sentiment. Third-party asset managers are more viable than ever before, said Jerry Lezynski, managing director, marketing and communications at SEI Advisor Network.

With increased competition, fee compression and increased regulatory scrutiny, independent financial advisors need to focus on becoming more efficient and doing more with less, and that’s where TAMPs are a big help, Lezynski said.

“Third-party asset managers invest in differentiating their investment offering to meet also changing investor demands, such as goals-based investing,” he explained. “Third-party asset managers also integrate workflows through technology to be more efficient, while empowering advisors to enhance their overall client experience and engagement.”

Even so, TAMPs are at a transformational point in 2018, Khatri said.

“As the shift in generational wealth occurs, so too will the need for advisors to focus on shifting client preferences,” he noted. “They’ll steer TAMPs to millennials, who’ll realize they can directly access TAMP-like services through various robo-advisor platforms.

“In a way, advisors will have worked themselves out of a job.”

Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms. Brian may be contacted at [email protected]