The Fee Factor: Understanding the True Cost of a TAMP

For every Registered Investment Advisor (RIA) in the industry, fees and expenses are undoubtedly a huge concern. The more attractively a fee structure is designed, the more likely it is that an RIA will garner interest from value-conscious investors hoping to optimize returns.

In a sense, the same can be said for Turnkey Asset Management Platforms (TAMPs) that want to convert prospective advisors into loyal clients. A TAMP’s fees must factor heavily into the decision-making process because a few basis points might determine whether an advisor says yes or no to a proposal. Advisors need to consider their own revenue streams and how fees tied to processing and administration might impact net revenue. This is where lowering operational costs by outsourcing to a TAMP can offer a distinct advantage to an advisor.

Proprietary Technology

TAMPs provide a number of services before and after the trade in one off-the-shelf platform – though the particular service offering is different from TAMP to TAMP. When it comes to the technology that drives the platform, some TAMPs engage a vendor that charges separate and distinct licensing or subscription fees for portfolio accounting, trading modules, customer relationship management software, etc. Typically, these costs end up getting passed on to their clients. That extra expense can make a difference to an advisor’s bottom line. Also, from a service perspective, an advisor will need to contact each licensed tech company for troubleshooting when technical issues arise, which can shift focus away from client relationship building.

On the other hand, there are some TAMPs that build the full system from the ground up, and in regards to pricing, the model could be considered a bundled deal. Proprietary solutions under the hood of such a TAMP’s entire software platform allow these entities to charge lower fees since a technological intermediary was never part of the formula. Complete operational platforms are delivered through one interface and in some cases, these functions can be customized to comply with certain specific needs.

Platforms that are strung together by numerous providers could encounter issues with processes and workflows. Much of a TAMP's effectiveness will hinge on the ability for its modules to work in concert or integrate. Functions that are not natively engineered with a shared database often end up clunky and error-prone, leaving an advisor with an integration that falls flat. With timely execution, reporting accuracy, and ultimately, client satisfaction on the line, should an advisor not get what they pay for?

Functionality When It’s Needed

For most advisors, growth of a client base and assets under management (AUM) are common goals. Regardless of what stage of the journey an RIA is at, operational costs will always come into play. Scale may act as a disadvantage for growing firms that engage providers offering inflexible platforms. Some TAMPs can be prohibitively expensive when services can’t be unbundled and geared to a particular life stage of a firm.

Some TAMPs, by contrast, are positioned to grow right along with the business. By offering some degree of customization, certain Asset Management Platforms can effectively construct a solution that meets a client’s functional and budgetary expectations. This model meets the needs of either a startup looking to control costs or a more mature firm desiring to outsource some or all of its back-office operations.

A Personal Touch

Most advisors are social and relationship-focused – what one might call a “people person.” Some TAMPs sell the sizzle of a turnkey solution, but after implementation, service might be lacking. Finding the appropriate department to answer questions regarding error messages, bugs, performance lag, etc. might be a challenge. And turnaround times can be long when waiting for resolution.

Other TAMPs understand that advisors want to be treated the way they treat their own clients. Owning technology has its benefits from a value standpoint, especially when some platforms also include a dedicated relationship manager who knows you and is available to relieve concerns when you need help the most.

By the Numbers

On one side of the coin, analyzing the numbers to assess which TAMP fits projected cost considerations is a worthy exercise. On the opposite side, comprehensive and personal services relieve an advisor from being just another number in the queue. Finding an equitable balance between affordability and service is key to conquering a future stage of business or executing efficiently in the present.