For independent RIAs who are working to scale their businesses for greater profitability, one strategic inflection point is whether or not to use a turnkey asset management platform in order to redirect their own efforts on client service and developing relationships. A properly integrated TAMP can go a long way to freeing up time to focus on what matters most to you as an independent practitioner — spending time with clients or prospective clients, building your client base and growing AUM.
But the choices associated with choosing whether or not to use a TAMP, while crucially important, are not simple. Having built a TAMP that serves RIAs and an RIA that serves over 4,000 individual clients, I have found it useful to break the decision down into a three-point framework, while also considering a few potential pitfalls to be avoided.
Decision point No. 1: Do you need more technology or people to operate the technology?
The first degree of outsourcing for RIAs is often done on your own as your team adopts increasingly sophisticated technology. As RIAs grow to deliver personal financial planning advice to more clients, I often see them graduate from off-the-shelf CRM technologies like HubSpot or Zoho to industry-specific CRMs like Redtail or Junxure, and then eventually into more sophisticated CRMs for integrated workflows like a customized Salesforce solution.
While this progression makes organic sense, that doesn't mean that each level is inherently more efficient than the next. True, each step up promises greater consistency, more diligence with follow up and better record-keeping — critical for a good client experience as an advisor grows from serving first 50, then 100 clients and eventually moving to a team service model involving multiple employees and several hundred clients. Along the way, data flow between systems, more efficient paperwork processes, and segmentation of employee access to limit the risk of data breaches assumes increased importance.
But as this necessary progression occurs, each level of CRM actually gets more complicated: there are more settings to manage, more fields to update and more connections to other systems to build and troubleshoot. This is replicated across trading, reporting and billing. Inevitably, customizing CRM reporting for "extra special" clients becomes more cumbersome to maintain as an RIA's client base grows.
TAMPs often make sense at this juncture in a firm's evolution, both because such companies have already built out every nook and cranny of their CRM or trading software and because they have specialized personnel. The TAMP's billing specialist, for example, knows instantly how to handle the special request, say, of a client who wants to pay for their kids' accounts from their own brokerage. The trading team is now the one spending 20 minutes looking at model deviation and tax ramifications to figure out how best to trade a portfolio to balance capital gains with asset location preference.
This time saved becomes the more valuable part of any TAMP solution — but how much time might be saved is often the hardest element to evaluate. When shopping around for a TAMP, my recommendation would be to take examples like the one above and walk through how you would communicate the special request or ask for an exception that doesn't fit into their default process. A few red flags when evaluating a TAMP include the TAMP expecting you to use software (or even worse an Excel spreadsheet!) to figure out what trades to execute, upload trades to the custodian, fill out PDF forms that are not pre-populated with client and account information, or send emails to their team for routine requests (anything routine should be done securely with workflows).
Decision point #2: Do you deliver the most value across many families or perfection to a few?
When the leadership teams at independent RIAs are deciding whether or not to use a TAMP, I often see them struggle with the idea of relinquishing control. This doesn't necessarily make them control freaks — I find that more often this comes from a place of caring so deeply about the people they serve that they demand perfection in their service. While laudable in itself, this impulse can also limit how much good they can do.
As an owner, you can control every button and knob of your software systems. Yes, you probably could do a slightly better job than an outsourcer because you know the client better, but that hour you spend doing so is an hour not allocated to solving the next client's major financial planning challenges. As the saying goes, "Don't let the perfect become the enemy of the good." If you are not able to let go of even the mundane processes, you'll inevitably restrict the number of clients you can serve. Advisors rarely step back to consider that their perfectionism may reduce the aggregate good they can do in this world. More pragmatically, perfectionism not only limits the value you create, but that value is intrinsically linked to how much revenue you can bill.
If your aim is to perfect a small number of clients, that is fine, but recognize that and set up referral partners for the clients you won't be able to serve.
Decision point #3: Should I hire or should I outsource?
At a certain point in your growth, if you want to gain any efficiency you have to have a tough coaching conversation with yourself about committing to a path that gets you to a better place. You will have two options: engage a TAMP or hire dedicated staff.
The right reason to hire is to improve the client experience with your firm. The wrong reason is an unwillingness to truly let go of the mundane. The first hire many RIAs make is a client services manager who is a wonderful people person and also magically detail-oriented enough to handle the paperwork. Such a person with strong people skills will get to know your clients, sometimes even better than you do. Developing more personal connections between your client and your team causes your client's brain to associate you and your RIA with feelings of trust and satisfaction. If you happen to have a stoic temperament, your outgoing hire can provide an important complement to your personality. Many couples have a more reserved and more outgoing spouse, so a diverse team can also allow more resonant connections between personality types.
Another option is to hire a relatively inexperienced next-generation advisor who is willing to handle administrative TAMP-like duties for a few years while they learn how to become a lead advisor. Many of these candidates come out of new CFP Board programs at colleges, custodian internship programs, or recruiting firms. This can be among the most cost-effective solutions, as often these candidates are highly educated and can quickly add unexpected value with their computer skills and process improvement.
My cautionary note on hiring a younger, highly motivated next-generation advisor is the risk of placing all your eggs in one basket, and a fragile one at that. More than half of college graduates stay at their first job for less than a year according to the Bureau of Labor Statistics. From anecdotal experience, my guess is that less than a quarter of college hires are still at RIA firms in five years and less than a tenth of them end up becoming lead advisors.
Almost always these issues stem from a mismatch in expectations rather than some irreconcilable defect in the employee. The next-generation person is hired to do administrative tasks for an ambiguously defined "several years" with promise of being mentored into a lead advisor role. The next-generation hire expects at that point to move to the advisory side, but when that time comes, the owner often is not yet ready to budget for another administrative hire or outsource those tasks to a TAMP. A few years into the role, the next generation is still expected to complete all the administrative tasks, is not leading client relationships or developing their own, and gets frustrated to the point of departing for greener pastures.
While hiring increases an advisor's control of process, engaging a TAMP steps up processes immediately to a professional level. Most TAMPs service billions of assets under management and have developed processes across many firms, learning from each. When hiring, you spend a lot of time getting that fairly green hire familiar with how RIAs operate or how you want to trade, versus a TAMP who has a team of employees who are professionally trained by managers who themselves likely have years of experience handling the most complex cases.
There are many solid reasons to outsource to a TAMP or retain the tasks yourself, but the keys to an effective implementation are understanding yourself, having clarity on your goals and having realistic expectations for both the process and the outcomes. Properly utilized, a TAMP can be your most important stepping stone to next-level growth. Just make sure that your reasons match up with your understanding of what the TAMP is intended to do.
