What it means
Running an investment portfolio properly takes research, trading systems, compliance and reporting, which is expensive for a small advisory practice. A TAMP bundles all of that into one package so the adviser can concentrate on understanding client goals and giving financial planning advice.
The package often includes client statements, tax reporting and performance figures. The adviser typically chooses from a menu of model portfolios, which are pre-built mixes of investments designed for different risk levels.
The TAMP then implements the chosen model in each client's account and keeps it on track. A key feature is rebalancing, which means bringing a portfolio back to its target mix after market moves have pushed it off course.
For example, if shares have risen and now make up 70% of a portfolio that should be 60%, the TAMP sells some shares and buys other assets to restore the balance. TAMPs earn their money through fees, usually a percentage of assets under management, and clients often pay several layers at once.
There is typically the adviser's fee, the TAMP's platform fee and the internal costs of the funds in the portfolio. Advisers should weigh the convenience against the total cost and the loss of control.
Some TAMPs restrict the investments available, and the adviser may have less freedom to tailor a portfolio for an unusual client. Regulation and responsibility also deserve attention.
The adviser usually remains responsible to the client for the suitability of the advice, even though the TAMP carries out the investment work.
In practice
Real-world examples.
Example
A two-person advisory firm manages retirement savings for sixty families. Rather than hire a trading team, it places clients into a TAMP's model portfolios and uses its reporting tools, which frees up the advisers for client meetings.
Example
A financial planner whose clients are mainly professionals with $500,000 portfolios compares two TAMPs. One charges 0.30% with a limited menu, and the other charges 0.45% with more customisation. She decides that her clients do not need the extra choice and picks the lower-cost option.
Example
An accountant who has become a licensed adviser wants to offer investment services to business owners. A TAMP supplies the compliance-friendly infrastructure, so he can launch within a few weeks, instead of building a platform over many months. He agrees to review the arrangement after a year, once he knows how many clients have joined and what the combined fees look like.
Formula
Calculation
Total annual cost % = adviser fee % + TAMP fee % + underlying fund expense %
A client has $1,000,000 invested. The adviser charges 1.00%, the TAMP platform charges 0.35% and the underlying funds have an average expense ratio of 0.25%.
Total cost % = 1.00 + 0.35 + 0.25 = 1.60%.
Total annual cost in dollars = 1,000,000 x 1.60% = $16,000.
Of that, the adviser receives $10,000, the TAMP receives $3,500 and the fund managers receive $2,500, and these three add up to the full $16,000. Showing the client the combined figure makes the real price of the service clear.Case study
Seen in the real world.
Northgate Advisory is a fictional small firm used as an illustrative example, with $80,000,000 in client assets and four staff. The partners spent about half their week on trading, rebalancing and quarterly reports, leaving little time to win new clients.
They moved the assets onto a TAMP charging 0.30% a year, which is $240,000 in annual platform fees. In return, they saved roughly the cost of one full-time operations employee and increased the time spent on client meetings.
After a year, the partners reviewed the arrangement. Client numbers had grown, but the combined cost to clients had risen, so they negotiated a lower platform rate and reduced their own fee slightly to stay competitive. They also began checking each year that the model portfolios still matched each client's stated risk level. This fictional case shows that a TAMP can improve capacity, provided the total fee layers are monitored. The partners now publish a one-page fee summary for every client, which has also helped with trust.
Watch out
Common mistakes.
- Looking only at the TAMP fee and forgetting the adviser fee and fund expenses. The client pays all three, so judge the total.
- Assuming the adviser has no responsibility once the TAMP is in place. The adviser still has to ensure the portfolio suits each client.
- Choosing a TAMP on investment performance alone. Reporting, service, technology and flexibility also matter in daily use.
Questions
People also ask.
What does turnkey mean here?
It means the service is ready to use as soon as it is switched on, with the investment infrastructure already built.
Who uses TAMPs?
Mostly independent financial advisers, small wealth management firms and accountants who offer advice.
Is a TAMP the same as a robo-advisor?
Not quite. A robo-advisor sells automated portfolios straight to consumers, while a TAMP sells infrastructure to advisers who serve the end clients.
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