In a lot of cases these days, it's done directly through the RIA's custodian. So the client technically signs a limited power of attorney an LPOA authorization to grant the TAMP the right to make the trades in their account on the custodial platform. But the key distinction is that, with a sub-advisor relationship, the client is first and foremost the client of the advisor and is the advisor who decides whether to keep or fire the TAMP as their sub-advisor, which also actually means the RIA then can legally claim the assets of the client portfolios as their own regulatory AUM because the advisor, the RIA is the one actually responsible for the primary management, even if their management process is then selecting a third-party manager for implementation.
Historically, TAMPs were more popular in broker-dealer platforms, either for those who were especially good at business development and asset gathering but didn't want to be doing all the investment management analysis so they outsourced it or for those who just thought that some TAMP strategies were especially compelling.
They would sell it to their clients as basically a more individualized, customized, personalized, separately managed account strategy than just buying some mutual funds or stocks. But in recent years, a new kind of TAMP adopter has emerged, the holistic financial planner. These are the advisors who are paid heavily or primarily for their financial planning services rather than being paid for their clients to just do the investment stuff. They are typically RIAs and not under a broker-dealer, because you have to be an RIA to charge an advice fee , and they might be charging an AUM fee on the portfolio but they build their value proposition, not around just picking and managing investments, but all the financial planning advice.
And in some cases they literally don't even charge for assets, they just charge financial planning fees, which not coincidentally that growth in fee-for-service planners is why we recently launched our AdvicePay platform. But from the TAMP perspective, the key point is that RIA financial planners are often advisors who do still want to be certain clients get properly invested. They want to play at least some role in the investment or manager selection and monitoring process but aren't trying to create their value by making better portfolios and don't want to be that hands-on in the portfolio and don't want to hire a CFA to internally run and manage their portfolios.
Because when your value isn't about trying to bring output to the table, you don't necessarily want or need a more complex investment management solution, just something that gets clients reasonably implemented into a diversified portfolio with low-cost funds. And these TAMPs actually are ending out being simpler and often cheaper than other TAMPs, which historically were charging as much as 75 basis points or more.
Next generation of TAMPs that we see for financial planning-oriented advisors, we're seeing at 50 basis points, 40 basis points, some even 30 basis points for larger RIAs because you get breakpoints at larger sizes. And these costs for TAMPs are important because ultimately, it is an extra layer of cost for the end client, right? Because the advisor gets paid, then the TAMP gets paid, and then if they're not investing directly into stocks and bonds, the underlying funds still get paid as well, right?
The mutual fund or the ETF expense ratio is a third layer of cost here. What was 75 basis points or more in the past, I see more commonly as 30 to 50 basis points now, with maybe a little bit of variability based on how much service the TAMP provides.
In the world of third-party asset managers, they often did everything and just remitted a fee to the broker. Sub-advisor relationships, though, if the RIA retains more control, they also have more responsibility, and usually the direct primary relationship with the custodian. They set the models, they do the trading or rebalancing but that's it.
It's up to the advisor to onboard clients, free up cash if the client needs a distribution, handle their own billing. It might be a little more expensive since they're adding an extra layer of service, or some even charge separately for the service layer and you buy up if you want those back-office options.
All of which raises what's actually one of the most common questions I hear from advisors that are looking for TAMPs, which is, how do you set your fees around the TAMP? Because after all, you could just charge your client a single advisory fee and then pay the TAMP out of your fees, you could charge two separate layers of fees, right?
Your fee for your role and then the TAMP fee for the TAMP's role, it might have add up to the same thing but they're billed separately, and some advisors will then reduce their fees in recognition of the work that the TAMP is doing. Others tend to keep charging their own fee and just let the TAMP charge its own fee.
You know, kind of akin to a mutual fund manager charges a management fee for buying the stocks and bonds while the advisor would get paid for selecting the mutual fund, you know, or the ETF manager gets paid to actually put together the ETF and the stocks, but the advisor gets paid to select the ETF.
Now, the good news is the typical cost for TAMPs these days is less than the cost of a lot of mutual fund managers, and then the advisor gets paid for the selection process. Ultimately I have to admit, I'm not sure there's a right or wrong answer here about the best or most proper way to get paid for a TAMP, because the truth is that it really depends on how the advisor was positioned with their clients in the first place.
You know, if your value for clients was helping them to find a good investment solution and you used to pick, you know, mutual funds for them, now you're picking TAMPs, it's just from picking one type of manager to another type of manager, you can still justify your fee for selection, due diligence and monitoring, you don't necessarily have to change anything.
If your value to clients was, you manage their money and then you outsource it and don't manage it, now it's a little bit more awkward. If the client expected you to be the portfolio manager, you would have either had to hire a CFA and staff or you're outsourcing to a TAMP, but arguably now that should be your cost, not your clients because the client was paying you to do it and you're delegating it down.
Now, if your value to your clients is primarily the financial planning and that's what they're paying for, arguably once again, you should be able to continue charging what you're charging for the value you're delivering and let the client pay for the TAMP.
You know, maybe you'll charge some AUM fee since you're still responsible for selection, due diligence, and monitoring of the TAMP, but if most of what you get paid is for financial planning and you're still doing the financial planning, there's no reason you need to cut out your fee to pay the TAMP any more than you give advice for estate planning but you don't pay the client's lawyer, and you might give advice on tax planning but you don't pay the client's CPA.
Develop and improve products. List of Partners vendors. Your Money. Personal Finance. Your Practice. Popular Courses. Financial Advisor Financial Planning. Financial Planning Financial Health Checklist. Table of Contents Expand. Special Considerations. The Bottom Line. Key Takeaways Turnkey asset management programs are fee-based platforms for asset managers, broker-dealers, CPAs, and other financial professionals. TAMPs can offer technology, back-office support, and tasks like investment research and asset allocation.
Turnkey asset management programs can help firms save time and allow them to focus more of their energy on finding new clients and servicing existing ones. By working with a third party, the user of a turnkey asset management program is giving up some control of some of the decision-making process, while also paying a fee for the service.
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What Is a Robo-Advisor? Robo-advisors are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision.
What Is Asset Management? Asset management is the practice of increasing wealth over time by acquiring, maintaining, and trading investments that can grow in value. How a Mutual-Fund Advisory Program Helps Lower Your Trading Costs A mutual-fund advisory program, also known as a mutual fund wrap, is a portfolio of mutual funds selected to match a pre-set asset allocation. What Is a Fiduciary? Advisors who use turnkey asset management services primarily reap the benefit of having more time to focus on activities that can directly correlate to better serving their clients.
That, in turn, could result in increased profitability if the advisor begins receiving more referrals. Instead of having to pay additional employees and other operating expenses to outsource tasks in-house, the advisor can pay a single fee to the outside asset management platform.
TAMPs also make it easier for advisors to oversee multiple client accounts in one place. If your advisor is working with a turnkey asset management program, your first question might be what it means for you directly.
There are some key questions to ask your advisor, starting with how it may affect the fees you pay. Remember, your advisor pays a fee to the TAMP for its services. Your advisor may not add anything to their fees to make up for what they pay to the TAMP. Ideally, the advisor should know how a turnkey program selects investments. A TAMP could help your financial advisor better manage your assets and their business. Does your advisor rely on this type of service?
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