Perhaps on the periphery of their zenith, but still an undeniably robust sphere, Turnkey Asset Management Platforms (TAMPs) are a popular choice for RIAs looking to effectively manage their client’s investments outside the company. Currently, there are around $2 trillion in assets managed by TAMPs, the majority of which is infused from RIAs.
The practice of outsourcing CIO (OCIO) roles is not new — the space was previously occupied by consulting firms. With companies squeezed on size, OCIOs became another appendage of the company itself. But for the past few years, RIAs have dug into TAMPs, to the extent that OCIO and TAMP have become synonymous.
What is a TAMP?
Turnkey Asset Management Platforms or Programs are digital mechanisms by which you can delegate asset management to a third party; they are fee-based services that offer a marketplace of investment strategists and essential tools. TAMPs allow advisors to unload tasks like onboarding and rebalancing to outsiders or bots, thereby freeing up time to develop client relationships and prospects.
TAMP or In-house CIO: Pros and Cons
The most common reason advisors utilize TAMPs is efficiency. The burden and minutiae of asset management is delegated to the platform and the advisor has more time to engage in the humanistic aspects of their role, including client relations and gathering assets. These platforms are incredibly useful for advisors that primarily oversee index funds because their management is already low effort.
Additionally, TAMPs provide a wealth of resources for advisors, from risk profile questionaries to detailed reporting, which are indispensable.
Alternatively, the strain of fees for TAMPs can be considerable as they grow with the RIA. Paired with lack of direct oversight of the client’s assets, this can result in a precarious position for RIAs. What’s more, some clients may not be comfortable with the proposition of a faceless third party handling their assets.
Opting for automated asset management requires relinquishing control. And some advisors report that this limits the potential growth on investments — they would rather be more hands-on and cultivate better results. Correspondingly, using a TAMP means no accountability in how the assets are managed.
While TAMPs will likely never replace the advisor, they do, nevertheless, pose an existential threat with the ceaseless and inherent amelioration of deep learning AI.
In-house CIO Pros
The role of CIO is ancillary in a RIA. You want an executive who will preserve and manage asset portfolios and act as an integral instrument in the growth of a company. Much of this role requires flesh-and-blood interactions, cajoling clients, identifying prospects, and communicating with their team. Therefore, having not only person but a person within your company is pivotal to growth.
CIOs are trained and experienced in ways AI is not, therefore in many instances they make investment decisions that are innovative and profitable. The hands-on management of money may seem a mundane task, but if you are unable to maintain and be accountable for portfolios much of the value of an advisor is lost.
Finally, CIOs offer a fixed rate for asset management. Unlike TAMP fees which are variable and, at times, exorbitant; an in-house CIO provides a full-circle solution. Cultivate the personal value of the role while minimizing the costs.
In-house CIO Cons
On the other hand, with the pandemic and general economic shifts, in-house c-suite positions may be cost-prohibitive to some RIAs. For local RIAs, outsourcing or opting for a TAMP can provide a stopgap until they can afford the talent.
And, the unfortunate reality many RIAs are experiencing is a lack of talent. Finding and maintaining an investment leader is a tall order. The prospect of passive asset management is not the most enticing role for hungry and forward-thinking experts. Unless most assets are managed actively, a TAMP or outsourced manager may be a more realistic option.
Making the choice between a TAMP and an in-house CIO can be challenging. If you run an RIA, you may still be unsure about which option is ideal for your business.
A good CIO can launch an RIA into the stratosphere. They are the full package: investment theory, management skills, innovation, and the human touch. We recommend that businesses with half a billion or more in assets under management (AUM) seek an in-house CIO.
Conversely, a firm under the half-billion AUM range may be better off with an outsourced CIO. This does not necessarily mean a TAMP; in fact, the lack of accountability and growing fees with TAMPs make them poor asset management choices long-term. Unless your firm manages pensions predominately, a TAMP may not be the best option.
If you are seeking top-level talent for an in-house or outsourced CIO position, contact us today. We find forward thinkers at the forefront of RIA and FinTech.