Back when the UK financial services market was struggling to get to grips with polarisation and looked to mainland Europe and Australia for solutions, the US market faced a different challenge.
Commission-based advisers were transitioning to fee-only models. Clients demanded more sophisticated investment strategies. There was increased competition from associated specialists, including accountants and lawyers, seeking entry to the financial services market.
The emergence of a turnkey asset management programme (Tamp) in the US as a solution to the challenge went largely undetected. Tamps were originally devised as an alternative investment solution but Tamp providers quickly evolved to offer a broader range of specialist services.
For a quarter of a century, US advisers have had access not only to an outsourced investment proposition that allowed advisers to focus more clearly on client relationships, including setting and reviewing financial objectives , but one that also offered:
- Access to institutional managers and better rates
- Fund manager due-diligence, as well as performance analysis, manager updates, investment philosophy, buy/sell discipline and style consistency
- Standardised client paperwork for consistent reporting and client presentation
- Account administration and compliance and maintenance of client accounts
- Market and manager analysis for up-to-date fund commentaries and reports
- Training and education support to use the tools, systems and knowledge to educate the adviser and the end client.
Tamps not only freed up adviser time thanks to outsourced investment systems, they also reduced costs with specially negotiated fees and
increased productivity and profitability as a result of training and education support. In short, Tamps gave advisers access to a range of managed account services that allow them to offload time-consuming functions like research, rebalancing and reporting.
With a 1,000 per cent growth, the popularity of Tamps in the US is irrefutable. The first Tamp emerged in the mid-1980s and by 1986, $1bn (£633m) in assets had already been invested, increasing to $4bn in 1994, then to $16bn just two years later. By 2001, the Tamps’ market was $78bn and by 2010, Tamp assets had reached a massive $255bn.
In 2005, 20 years after Tamps first appeared, in a survey of 1,028 US advisers, CEG Worldwide said: “Advisers who have adopted a wealth management business model and also outsource their investment offerings to one or more turnkey asset management providers (Tamps) enjoy the highest level of success by a wide margin. These advisers generated significantly higher incomes than their peers in 2004 and expect to do so again in 2005.”
But if TAMPs are so pivotal to the US advice market, why didn’t we know more about this US financial planning innovation and its potential to help advisers make the switch to the new model? The short answer to this question is that a number of companies already do offer some of the individual components of a Tamp. However, it is the countdown to RDR that has provided the catalyst, fuelling the demand for a broader range of high-end specialised support services.
Outsourcing investment provides a good example of how Tamps can make a difference to the operational efficiency of an advice firm.
Until very recently, IFAs would be forgiven for thinking that they have to be experts in everything from macro-market issues to the latest movements of the Tiger economies. However, global best practice has consistently identified objective financial planning as a key to providing client value, not market timing or stock selection. Second guessing the market is not the job of an IFA and does not help clients.
Clients never expected their IFA to be an expert stockpicker but they did expect their IFA to know someone who is. The primary role of the financial planner is first and foremost to help clients identify and achieve their financial goals within a proper risk-controlled framework. Everything else after this is a distraction.
By outsourcing the fund management process to professional fund managers, IFAs will save valuable time that they can use to concentrate on building solid relationships with their clients. Our current economic climate has proved that properly engaged clients are more loyal. Clients with a financial plan that focuses on achieving an objective are more reliant on their adviser than those whose relationship with the adviser is based on the performance of the products sold.
Figures quoted in the US suggest that Tamp will account for £1.5tn of the assets managed on behalf of advisers worldwide
On its own, outsourced investment provides a fabulous solution that benefits both advisers and clients. But the value lies in the additional range of services – such as providing financial planning expertise, implementation of systems and processes to streamline activity across the firm and, in our proposition, a succession strategy.
In recent months, I have observed a rapid acceleration towards turnkey solutions. It is a theme that is set to explode, taking the UK by storm and growing in other markets too.
Becoming a Tamps provider requires some significant investment in infrastructure, technology and expertise. But figures quoted in the US suggest that Tamps will account for £1.5tn of the assets managed on behalf of financial advisers worldwide.
By Andrew Smith
Chief Operations Officer