If you’re looking for a financial advisor, it’s important to understand how they handle your assets. Some financial advisors take a hands-on approach, and prefer to stay involved in all aspects of asset management. Other advisors use a more hands-off approach, and offload some tasks to a turnkey asset management program (TAMP).
Here’s everything you need to know about TAMPs, and how they can impact your investments.
Turnkey Asset Management Program Basics
TAMPs are designed to reduce the amount of time financial advisors spend on certain job-related tasks. A good example of this is accounting and reporting. By outsourcing those tasks to a TAMP, a financial advisor can spend more time researching the market, meeting with clients, and performing other core aspects of their jobs.
Different TAMPs provide different types of services. Some focus on accounting, others on taxes, and others on the nitty-gritty details of investment. But like any type of service, your financial advisor will pay a fee, which is normally a small percentage of the assets they’re managing. This cost is passed on to the client through the advisor’s fees.
The 6 Kinds of TAMP
There are six basic kinds of TAMP, each with its own unique quirks. Here’s a quick look at all six of them:
- Mutual fund wrap accounts. These services offer a selection of mutual funds, and they provide services for all of a financial advisor’s mutual fund trades. The advisor first custom-builds a mutual fund portfolio for a particular client, then submits the funds to the TAMP. The TAMP structures the funding in such a way as to minimize tax liability, while still meeting the client’s investment goals.
- Exchange-traded fund wrap accounts. These are similar to mutual fund wrap accounts, but they provide services for ETFs instead of mutual funds. Trading costs for ETFs tend to be much lower than they are for mutual funds, so these TAMPs are generally more affordable.
- Unified managed accounts. Unified managed accounts provide services for all kinds of investments, including stocks, bonds, mutual funds, and ETF. Each type of investment is managed within its own particular “sleeve,” to take advantage of different tax rules for different investment categories.
- Unified managed household. Unified managed household accounts are designed to manage funds from multiple people in the same family. These TAMPs are designed specifically to meet the investment requirements of high net worth families.
- Separately managed accounts. These are similar to a unified managed household, but it’s an account for a single person’s assets. As you might expect, this type of TAMP is also used almost exclusively by the very wealthy.
- Cryptocurrency accounts. This is a relatively new type of TAMP, designed specifically to manage cryptocurrency assets. Launched in July 2020, San Francisco-based BITRIA is the first TAMP in this category.
Why Do Advisers Use TAMP Services?
Most financial advisers use TAMPs because they prefer to focus on other aspects of their job. For every aspect of investment that they can outsource, they can spend more time doing other things.
Imagine a financial advisor who’s 100% hands-on. They manage everything from accounting to taxes, across all of your investments. That advisor probably has a limited number of clients, and doesn’t have time for more. This puts a hard cap on how much they can grow their business.
Now, imagine an advisor who outsources many tasks to a TAMP, but spends a lot of time doing market research and investigating companies in your portfolio. This advisor can afford to be better informed, and they can spend more time meeting with clients.
Can a Turnkey Asset Management Program Hurt My Investments?
It depends. As we already mentioned, your financial advisor pays a fee in exchange for the TAMP’s services. Since your advisor doesn’t work for free, they’re going to pass these costs on to their customer – you. That said, a TAMP, like any business expense, is an investment. If your advisor gets better results by using one, it can be well worth your while.
The more important thing to consider is how the TAMP’s investment philosophy compares to your own. Set an appointment with your financial advisor, and ask them about it.
Ultimately, a TAMP is just a tool, and it can be a good thing or a bad thing, depending on how it’s used. The real question is whether or not it helps your financial advisor to be better at their job. If it does, it can be well worth the marginal extra cost. If it doesn’t, you should look for an advisor that’s better suited for your needs.