The number of financial advisors outsourcing the investment management arm of their businesses has grown dramatically over the past several decades. Assets managed by asset management programs in hand are inflated to about $853 billion by the end of 2022, up from $162 billion in 2010. The industry is expected to continue growing at an annual clip of 25%.
The growth trajectory of TAMPs partly reflects their evolution from providing back office and/or operational support to investment administration and, in some cases, expanding their services to provide a complete platform for wealth managers. But it's not just advisors who reap the benefits of outsourcing investment management—clients do, too. Morningstar endnoteS that while outsourcing this function does not necessarily foster deeper relationships in itself, it enables the advisor to increase the time spent with clients, building trust and thus enhancing the client experience.
Regulatory pressures that expand fiduciary responsibilities have also increased advisors' interest in outsourcing. By delegating investment management, advisors can reduce potential liabilities and free up time for client-facing activities, more closely aligning their interests.
Ultimately, outsourcing is a very personal decision based on an advisor's specific business circumstances, not general industry or market trends. Let's look at three critical questions advisors and their firms should ask themselves before engaging with a Tampa.
What is your passion?
Remember why you became a financial advisor – it can help to ask yourself, “Why did I choose this career?” Consultants generally fall into two categories: those who love the technical side of the business and those who thrive on interacting with clients.
If you're passionate about the investment process itself, outsourcing may not be for you. After all, why give up what you love? However, if your passion lies in customer service, outsourcing investment management can allow you to focus on what really excites you.
If you're more of a “people person,” outsourcing can be beneficial, freeing up significant time each week. This can allow you to engage more with customers and prospects, improving your workflow and energizing you in the process.
Where do your talents lie?
Even if your team is passionate, there may be skill gaps. Ask yourself, “What am I good at?” If you love investing but lack the skills to do it competently at scale, consider outsourcing. Your clients deserve the best, and RIAs have a fiduciary duty to act in their best interest. Be honest in your assessment of your abilities.
If you are capable of investing but don't like it, think carefully before contracting. Your customers don't have to suffer because you want to offload an unpleasant task. Make sure your outsourcing partner can match or exceed the quality of your existing service.
What are your goals?
Assess short-term and long-term goals for your firm. If you are happy with your current situation, then avoid contracting – as it can prove destructive early in the engagement. Choose to outsource only if it aligns with the specific, clearly defined goals of the firm.
Outsourcing can help achieve these goals, but be sure to clearly articulate your objectives before deciding. Weigh the potential benefits and tradeoffs to determine if outsourcing aligns with your vision for your practice.
Evaluate the benefits
Transferring to a TAMP can provide advisors more time for customer research and service, driving growth and retention. No wonder, the studies have shown that financial advisors who outsource tend to have larger and more profitable firms than those who do not.
TAMPs also allow firms to focus on core strengths while outsourcing non-specialized areas. By relying on outsourcing for broadly diversified portfolios, many can focus internal resources on specialized offerings. Examples include alternatives, larger complex accounts or high-value personalized services such as financial planning where they can address individualized client needs.
From an operational standpoint, outsourcing can help advisors avoid the costs and personnel expenses of in-house portfolio bookkeeping, performance reporting, invoicing, trading, and other systems necessary for investment management—freeing up resources. and bandwidth.
For practices undergoing business continuity or institutionalization for a future sale, outsourcing professionalizes the investment function so that it can continue independently of the departure of any single advisor, increasing transferability and continuity.
Is TAMP right for your firm?
Outsourcing investment management to a TAMP is an important decision that must be carefully evaluated against your firm's specific goals, passions, and talents. For advisors who love the investment management process and consider it a strength, keeping investment management in-house may be preferable.
However, for those whose talents lie more in client-facing activities, such as holistic financial planning, or for firms looking to focus on specialized offerings, a TAMP can be an ideal solution. It frees up advisor bandwidth to focus on the high-value services clients increasingly demand, while providing cost-effective access to professional investment management and operational efficiency.
As the industry continues to evolve amid increased regulatory pressures, firms that strategically evaluate and align their outsourcing decisions with their long-term vision will be well positioned for growth and success. A thorough assessment of your firm's needs and a careful consideration of the potential benefits and trade-offs will guide you in determining whether a TAMP is right for your practice.
Scott MacKillopStrategic Advisor at GeoWealtha leading turnkey financial technology and asset management platform.