Some advisors outsource so they can provide better investment solutions to their clients. They may measure this in terms of:

• credibility they gain by working with a partner who has greater resources
• more consistency in their investment process
• broader choices they can offer their clients
• improved investment outcomes 

Others outsource to gain operational efficiencies. Outsourcing allows advisors to off-load the burden of trading, performance reporting, billing and other back-office functions to a TAMP.

Outsourcing can also produce cost savings in both the investment and back-office areas.

Outsourcing can help you institutionalize your practice, so you can sell it or transfer ownership to the next generation. It’s much harder to walk away and realize the value of your firm if you’re the chief investment officer and your investment process is dependent on you.

Outsourcing also allows you to sit on the same side of the table as your client and be more objective about portfolio performance. It’s hard to fire yourself if you’re the manager, but easy to change managers or portfolios if you outsource.

What Are The Options?
There are five different outsourcing business models that you can consider. 

The first is the “traditional TAMP” model. In this model, the TAMP offers in-house investment management services. The portfolios are managed on a discretionary basis by the TAMP itself. 

Traditional TAMPs charge a fee for their services, although some have created proprietary mutual funds and derive their compensation through the expense ratios of those funds.  

The second business model is the “platform TAMP” model. Platform TAMPs offer access to portfolios or investment products from many firms. 

Platform TAMPs usually charge two fees. The first is a “platform fee” that covers services such as due diligence, trading, performance reporting and billing. The second is a fee that covers the investment management services of the managers who are accessed through the platform.

The third outsourcing option is the “model marketplace.” Advisors are given access to model portfolios from multiple asset management firms referred to as “strategists.”  Marketplace sponsors create virtual marketplaces of portfolios and products from other firms.

These model portfolios are often available without any strategist fee since, in many cases, they’re comprised of proprietary products managed by the strategist. 

Model marketplaces don’t offer many of the services offered by TAMPs. They offer access to models, but they don’t take discretion of the account. The advisor is responsible for trading, performance reporting and billing—services handled by both traditional and platform TAMPs. 

Since advisors are responsible for model implementation, they can freely modify those models. This is not an option that is widely available from traditional or platform TAMPs.

The fourth option is to subscribe to models directly from firms that offer them for a fixed annual fee. Advisors who subscribe are fully responsible for implementation of the models. This leaves advisors the administrative burden and fiduciary liabilities of portfolio management, but gives them the option to make modifications to the models without limit.

The final model is the OCIO model. Here you can retain the services of an outsourced chief investment officer to work with your firm to build and manage portfolios. The nature of these arrangements can vary quite a bit, but the OCIO usually will work with your firm to provide a flexible set of consulting and management services. 

What Services Do You Receive?
The nature and quality of the services offered varies quite a bit. 

Traditional and platform TAMPs offer a complete suite of services that typically include:

• Discretionary portfolio management
• Account administration
• Performance reporting
• Billing services
• Marketing material and proposals
• Ongoing market commentary, research and whitepapers
• Tech tools
• Practice management and educational programs
• Service support