Q57 – What Is A TAMP?

Also available as podcast (Episode #57)

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What is a TAMP?

TAMP is an acronym for Turnkey Asset Management Program.  Originally started in the 90’s, TAMPs at their core are a way to access a managed money solution to use to invest your client’s assets.  These platforms often provide a way to access various 3rd party Separately Managed Account (SMA) providers, and/or 3rd party managed model portfolios. Over time, TAMP solutions have expanded their offerings to the point where one “TAMP” might have a very different value proposition and service offering compared to another “TAMP”.  When considering using a TAMP platform it is important to understand these variations, why you might choose one over the other, and how they are all priced out.

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Full Transcript:

What is a TAMP? That is today’s question on the Transition To RIA question and answer series. It is question #57.

Hi, I’m Brad Wales with Transition To RIA, where I help you understand everything there is to know about why and how to transition to the RIA model.

If you’re not already there, if you head over to TransitionToRIA.com, you’ll find all kinds of additional information, including the show notes from today’s episode.  Again, TransitionToRIA.com.

On today’s episode, we’re going to talk about what is a TAMP?  Which is an acronym for Turnkey Asset Management Program.  TAMPs, which were started in the ’90s, have expanded greatly to the point where you have to be very careful when talking to someone about a TAMP to know exactly what they’re referring to.

Because there are so many different flavors now of what that means, you have to dive into the details to understand what it is that they are providing. That’s what I’m going to explain today is what it is at its core, and then what these different variations are, how they work, and things like that.

A TAMP at its core is a platform that gives you accessibility to some sort of managed money solution. That could be third-party SMA managers, or perhaps third-party created models that you will utilize with your clients.

As a financial advisor, you essentially have two options for how to invest your clients’ assets. The value proposition for some RIAs is they do the investments themselves. They have that expertise in-house and the resources in-house to do that. They say, “Part of our value proposition is we invest your money. Here’s our philosophy. Here’s how we implement it.”

Other advisors say, “My core strength is in the relationships and the financial planning and building the business. I rely on third-party experts to provide the actual management of the assets. Part of my role is to oversee those managers, as they say, be the manager of managers, to make sure that the professionals we utilize to invest your assets continue to be the best resources we could provide for you in that regard.”

There’s no right or wrong on that. That’s a personal preference of how you want to run your own firm. But for the advisors that want to access third-party solutions, you need some way to do that. You need to logistically access them, logistically facilitate the trading in the accounts, process the fees, all that. That’s essentially what a TAMP is.

A TAMP is a platform that gives you access to these resources. Before TAMPs came along, let’s say you are in that second camp where you believe in outsourcing to third-party professional money managers to run the actual investments in the accounts.

Before a TAMP came along, you would have had to go out there and identify and contact different managers that you might want to use. Then to the degree you found managers you liked, you would have to enter into contracts directly with them, you’d have to negotiate fees, coordinate all of the logistics for the facilitation of the trades from a technology perspective, etc.

That’s just for one manager you might use. If you wanted to use maybe two, three, four, five different managers with your clients, that was very difficult to do on a one-off basis.

What these TAMP platforms did is created, for lack of a better analogy, a grocery store, where they said…we’re going to make a platform, the grocery store, and we’re going to go out and source all kinds of different managers or maybe model providers, whatever the case is. We will negotiate with them the fee structure. We will figure out all the logistics for trading.

We will put them on the proverbial grocery shelf, and then you, as the advisor, can come along, you only have to coordinate with our TAMP platform, just one coordination. From that, you can then choose from this whole multitude of options. It’s all laid out for you and all the fees are negotiated. You can plug and play into whatever particular solutions you’ve chosen.

And so, there is a lot of utility to a TAMP platform. If you want to use third-party managers, it provides a lot of efficiency, which at one point was not available at all.

So, that’s TAMP’s at their core. They have since expanded greatly beyond their original structures, which is a good thing because, as you’ll see, it has provided additional resources and value for the advisors that use those platforms.

That’s where things get tricky though because then you’re expanding beyond just that core offering. If you look at one TAMP over here and another tamp over there, they might have very different value propositions.

I should point out as well, there are some TAMPs that are single manager solutions.  They are the sole money manager option themselves. They say…”This is a way to outsource to us and we will provide you all these additional services as well, hence why we call ourselves a TAMP. ”

Most of what I’ll be talking about here though is the grocery store approach where you have multiple different options to choose from.

Now we’ll run through the different kinds of offerings that are out there.

The first one is essentially platform-only, for lack of a better term. A platform that provides you access to multiple solutions that you can choose from where they’ve negotiated and integrated everything. That’s the core of what they provide.

A lot of TAMPs were essentially that and that alone early on. But for competitive reasons, it’s expanded beyond that. Just know though the baseline offering is that platform-only, that grocery-store-shelf-only approach.

Now we’ll go into some of the variations. These are not building on each other.  Some solutions provide them, others don’t.

There are some TAMPs that not only provide you the grocery store approach, but also have in-house research experts that provide you research on the managed solutions to help you select which manager you might want to use. And then just as important, to help you monitor those managers over time. Are they still the caliber of when you first chose them? Has something changed with the management team?

There are TAMPs that provide this type of research to help you figure this all out. Oftentimes, the universe of managers or models available can run into the hundreds, or thousands of various combinations. So to have that research can be very helpful.

Then other advisors say…”Part of my value proposition is I do the deep research on the manager myself. I am closely staying on top of any changes with their approach or their management team.”

You might do that entirely on your own.  While others lean on research being provided by a TAMP.

The next variation are TAMPs that go beyond the core technology needed to provide the grocery store approach, by providing additional technology as well. A perfect example is a white labeled client portal where your clients can log in and see all their accounts in one place.

You could source a client portal through some other third-party tool, but a TAMP might say…”If you’re going to use us for your money management, why not use this fully integrated approach where we also have a client portal available for you here as well.”

So some TAMPs, again, for competitive reasons, are adding on technology solutions beyond just the core platform service. I’m going to get into how this is all priced out here towards the end of the episode, but just know that some TAMPs are adding on technology.

So again, when you compare one TAMP to another, one TAMP might be providing a good deal of additional technology and resources for you to utilize, whereas another TAMP might not provide anything beyond what is logistically required for the platform approach. That’s why you have to dive deeper into these things.

Next, there are a number of TAMPs that have also added back-office type services. Things like account opening, where they will facilitate on your behalf the account opening process with the custodian and get all that set up.  They’ll assist with a lot of the labor-intensive tasks involved of running your practice.

A lot of TAMPs are offering more back-office type solutions, both to differentiate themselves from other TAMP offerings, and just like you have to do, to justify their fee for the value they provide.  They say…”Look at all of these services we provide, that’s how we justify our fee and it makes sense for you as the advisor to pay that fee. So that’s a variation as well.

A lot of what is happening is the original platforms are expanding with technology, expanding with back office services, etc. When I talk to some of these TAMPs, I tell them I don’t think they should call themselves a TAMP because they’ve built out such deep resources that the money management slice is now only one part of that. If you call yourself a TAMP, you’re not giving yourself credit for all these other services you’re providing, whether technology, back office services, whatever the case may be.

There’s no fancy coined term for it yet, but they’re essentially a “full service platform” that happens to include a “TAMP” component as part of the offering.

The tide is evolving but there are still some folks that call themselves a TAMP, and I would argue, they do a lot more for you than other TAMPs do but yet, we’re still all using that same name. It circles back to why I say it’s so important to not just hear the word TAMP, but to understand what actual value and services are being provided.

There are other combinations as well. I didn’t cover everything. There are all kinds of wonderful TAMP resources trying to gain the business of advisors. And to do that, they are trying to differentiate themselves, either with lower pricing, more resources, a more full service platform to make your practice more efficient. And so, just know, there are some wonderful solutions out there of all different kinds of varieties. I didn’t cover all the different variables that could go into it. I think this is only going to continue to evolve.

Now, we’ll move to pricing. How is all this priced out?

Because of everything I just said, you can imagine different TAMPs have different pricing because they’re providing different levels of service. But generally, at its core, there are two pieces of the TAMP platform price. And this does not include your fee. Your fee would be separate from this.

Generally, the way this is priced out is that the TAMP platform itself, whether that’s a bare bones, grocery store chassis, or whether it includes technology or back office services, whatever the case, it is all bundled up, and you generally pay basis points for that. It’s X basis points on the assets and here’s everything we provide for you.

Separate from that, is the managed money piece.  Again, the TAMP itself has sourced sometimes hundreds of different money managers. Each of those money managers set their own price.  However, they have to be competitive because they are on that grocery store shelf alongside all of these other solutions. There’s a competitive nature to that as well.

There is variability. There is no across the board pricing that all money managers charge X basis points. They each have their own value proposition, that they feel justifies whatever their fee is.

So with the TAMP offering, you pay for the platform, and then you pay for the individual managed money solutions chosen.

And again, the TAMP has gone out there and negotiated that on your behalf. The TAMP has generally more negotiating power than you would ever have directly trying to go to that manager because that TAMP says…”Hey, money manager, if you’re on our platform, and we have hundreds, maybe thousands of advisers using our TAMP platform, and they have access to you, and so it’s going to get you more assets under your management, so you have to give us a good price to pass along to the advisors that use our platform.”

Part of what the TAMP also does is facilitate these fees being compiled and taken out of the clients’ account and all those sorts of things.

This is not an exhaustive list of anything and everything there is to know about TAMPs, but I do feel this will give you a good initial starting point to understand what they are and the kind of variations that are out there.

The last variable I want to talk about on this episode is the difference between an in-house TAMP and a third-party TAMP. If you are at, for instance, a broker-dealer now, you’re probably under the corporate RIA, and you if utilize third-party managers, your firm has most likely built an in-house TAMP. They have curated a list of managers that they make available for you to use, they have negotiated the fees, etc. They are the ones providing the TAMP platform.

They are either charging you directly for it, or it’s effectively part of your payout. That’s an in-house TAMP. They are providing that grocery store shelf for you to access, for you to utilize.

Another example of in-house would be in the RIA world. Any RIA that’s going to have assets under management needs at least one custodian, sometimes more. I’ve done all kinds of episodes on that.

Custodians themselves will provide a TAMP platform that you can access. “With the assets you hold with us as the custodian, we have this wonderful TAMP that we’ve built, and here’s why we think you should utilize it.” There is that in-house solution.

The trend though, and what is the more effective approach for RIAs, is to use, as they say, a third-party TAMP. Meaning it is not married to your custodian.

In a broker-dealer world, unfortunately, you generally don’t have a choice. You have to use your broker-dealer’s TAMP. As a quick sidebar, the reason they force you to use their in-house TAMP is: 1) from a supervisory perspective, they want to be able to curate a list of only certain managers, and those are the only ones you can use because they’re the ones they are comfortable with.  This is because they have a regulatory responsibility to supervise you.

And 2) it is a profit center for broker-dealers. By having a TAMP platform, they are providing the role that I’ve been describing in this video. It is fair for them to charge for it and they’re able to generate revenue from providing the platform themselves.

In the RIA world, particularly if you are going to have multiple custodians at some point in the future – I’ve done different episodes on why that might be the case – you generally want to unmarry your TAMP from any one custodian.

The reason is because let’s say you find a TAMP solution that provides wonderful technology and resources. It is a great fit for you. Great value for the price. All those sorts of things. If you’re multi-custodial, you want to make sure that TAMP can talk to multiple different custodians. You only want to use one TAMP chassis no matter whether your client decides to open your account at this custodian or this custodian over here.

Whereas, if you use an in-house solution, that only works for the clients that you open at that custodian. If you need or want to have a second or third custodian, now you must use a different resource for them.

It’s for the same reason that most RIAs don’t marry their technology to any one custodian either. They use third-party technology….”I build this tech stack and it can work with multiple different custodians that I have. I don’t need to change anything about my process, whether the clients open up an account with this custodian or this custodian.”

Same thing in the TAMP world. Most RIAs want a third-party TAMP so they can utilize the same processes regardless of where the client opens the account.

So just know that there are TAMP solutions in-house – some wonderful ones – but they do have the challenge of being captive. If you’re in a broker-dealer environment, I guarantee you your availability of managers or models to choose from is significantly smaller than what you could obtain in the RIA world using a third-party solution, not to mention the operational efficiencies that I talked about as well.

I hope this gives you an idea of what TAMPs are, in general, as well as the different variations. This is not an exhaustive list, but we did at least dive into what TAMPs are and how they differ.

With that, like I said, my name is Brad Wales with Transition To RIA. If you’re not already there, if you head over to TransitionToRIA.com, I have the entire series of episodes both in video format, as well as podcast format. I also have whitepapers, all sorts of things.

If you’d like to talk about any of these topics, at the top of every page there’s a contact link. Click on that and you can instantly and easily schedule time to have a one-on-one conversation with me to go over this specific topic or any other RIA-related topics.

What I help advisors do is understand the RIA model, and what the steps are to transition to it. Today’s episode is a perfect example…”If I’m going to use managed money solutions, how do I access them? What are the solutions out there? How does it work?”

That is something I help advisors with all day long. I’m happy to have that conversation with you as well. Again, TransitionToRIA.com, you can reach out, get in touch, and see all the other resources.

With that, I hope you found value in today’s episode, and I’ll see you on the next one.

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