“Many forms of conduct permissible in a workaday world for those acting at arm's length are forbidden to those bound by fiduciary ties.” —Judge Benjamin Cardozo
The term TAMP is an acronym for “turnkey asset management provider.” TAMPs provide outsourced portfolio management services for financial advisors and their clients.
There are many benefits that may result when a financial advisor chooses to outsource the management of client assets to a TAMP. They include:
• Getting more time to service clients.
• Getting more time to acquire new clients.
• Gaining operational efficiencies for the advisor’s firm.
• Providing additional conveniences for the client.
• Saving money for the advisor’s firm.
• Saving money for the clients.
• Institutionalizing the advisor’s practice.
• Enhancing the credibility of the advisor’s firm.
• Gaining access to better asset management solutions.
• Gaining access to ancillary services provided by the TAMP.
• Letting the advisor sit on the same side of the table as their clients.
How many of these are benefits to the client and how many are benefits to the advisor? This is an extremely important question because selecting a TAMP to manage client assets is a fiduciary decision. Therefore, it must be made based on the benefits to the client.
This may come as a shock. Certainly, TAMP marketing material never focuses on this issue. On the contrary, most of it focuses on the benefits of outsourcing to advisors, since advisors usually control the TAMP selection decision. But advisors who select TAMPs based on the benefits to themselves rather than their clients violate their fiduciary duties to those clients.
Selecting a TAMP is no different than selecting a stock, a mutual fund or an ETF for a client’s portfolio. TAMPs are asset managers. Advisors owe their clients a duty of care and a duty of loyalty when outsourcing client assets to a TAMP, just as with any other investment decision.
This is a fact that is easy to miss these days. Many TAMPs have gravitated away from focusing on their asset management capabilities. Instead, they tout the benefits of their technology platforms, their practice management programs or their marketing support. While these add-on services may be attractive to advisors, they are typically of far less benefit to clients.
When selecting a TAMP for a client, an advisor should structure their due diligence process to focus on client benefits. As a starting point that means a review of the TAMP’s people, process, performance, pricing and portfolios (or products). These are the so-called “5 Ps” that should be the focus of any asset manager due diligence process.