Wealth managers are searching for a new type of TAMP
Smaller wealth management firms have a problem. To be competitive, they need to become more efficient, freeing up advisors to spend more time with prospects and clients. For larger firms, that means delegating rebalancing to a central rebalancing group. (See The Art of Centralized Rebalancing.) But smaller firms don’t have central rebalancing groups and may not have the resources to create one. So, what’s their solution?
Most of the smaller firms we talk to express interest in outsourcing to a Turnkey Asset Management Program (TAMP). But they can’t follow through because existing TAMPs don’t meet their needs.
TAMPs fail for three reasons:
- TAMPs don’t provide enough customization and tax management.
Advisor-rebalanced accounts are usually customized and tax managed. Advisory firms can’t give this up — if anything, there’s competitive pressure to increase the level of customization and tax management.
- TAMPs don’t provide the wealth management firms enough control over asset allocation and product choice.
Advisory firms have their own views on asset allocation and product choice, or they’re already working with a third-party consultant they like. They may be willing to rely on the TAMPs’ due diligence work, but, at the end of the day, the advisory firm wants to stay in control of key investment policy functions.
- TAMPs are too expensive.
TAMPs should be able to be able to bring economies of scale to the task of rebalancing — especially customized, tax-optimized rebalancing — for less than what it would cost smaller wealth managers to do it themselves. We’re not yet seeing this.
So, there’s a puzzle. We’re seeing a demand for low cost, customized, and tax-optimized outsourced rebalancing solutions where the wealth management firm has continued control over asset allocation and product selection. And we know that it’s technically possible for TAMPs to provide this service — we’re seeing larger wealth managers create centralized groups (basically internal TAMPs) that do just this. Where, then, are the TAMPs? Why aren’t they stepping in to provide what appears to be an unmet market need?
Frankly, we’re not sure of the answer. Inertia? Hidden barriers? Or is it just a matter of time? Our expectation: it’s just a matter of time. If traditional TAMPs don’t move in this direction, new players, especially asset management firms, will. (See Asset Managers Pivot to Sell Solutions, Not Just Product.) TAMP fees will go down as service levels go up. We think this will be transformative, that the combination of improved TAMPs and competitive pressure for advisors to become more efficient will jointly create a new age of TAMPs.