While the trend toward investment management outsourcing has been unfolding for some time, advisor industry leaders say 2023 will likely be a watershed year for the use of turnkey asset management programs by wealth management professionals.
Experts from a diverse set of firms have emphasized the point in recent discussions with ThinkAdvisor, including Skip Schweiss, the current CEO of Sierra Investment Management and former president of TD Ameritrade Trust Co.
According to Schweiss and others, today's wealth management professional is expected by clients to be many things — a financial planner, a guidance counselor, a confidant and more. In a marked change from decades past, the investment management part of the client service equation is often placed behind these other roles, in no small part because today's clients expect to get top-notch investment support from any professional they choose to work with.
These dynamics make it critical for wealth management teams to find ways to offload lower-value investment management tasks without adding manual labor or having to spend the time implementing and maintaining proprietary technology. Enter the turnkey asset management program.
As Schweiss and others explain, the use of TAMPs can change the game for independent wealth management firms, enabling their financial advisors to focus on higher value tasks, such as business development or providing holistic financial guidance to their clients.
The experts say those advisors still hanging their hat on old-fashioned stock picking may soon be in for a rude awakening. All in all, they expect TAMPs to continue to increase in popularity and capability, putting the onus on firm leaders to consider new and potentially more efficient ways to deliver high-performing investment strategies to their clients.
Rocky Markets Raise Questions
As Schweiss observes, the wealth management industry is coming out of one of the most difficult market years on record, with both stocks and bonds experiencing notable declines in 2022. In Schweiss' experience, the shock of seeing bonds fall so quickly (and in tandem with stocks) seems to have had a big impact on the typical financial advisor.
"We've basically never seen a year like that for bonds," Schweiss says. "Advisors expect that the stock side of the portfolio may sell off pretty substantially ever five or seven years, but 2022 was something very different and out of the ordinary on the bond side."
The strain of managing client portfolios in 2022 and early 2023 has helped many holdout advisors see the wisdom in investment process outsourcing, Schweiss suggests, noting that he is particularly proud of the performance of Sierra's model bond portfolios in 2022. These saw the typical investor experience losses in the realm of 5%, rather than the 10% to 15% experienced by many investors.
"Look, we never like to see a negative symbol in front of the performance figure, but compared to the rest of the market, that is strong performance," Schweiss says. "We've had a lot of advisors calling us and asking us how we achieved that, and I can tell you that, because of the story we have been able to tell about our performance, we actually saw net asset growth in 2022 here at Sierra."
Schweiss says an environment like the one experienced in 2022 shows how difficult it is going to be for any stand-alone registered investment advisory shop to match the technology utilization and the tactical investment oversight process that a TAMP firm like Sierra or its competitors can bring to bear. Simply put, the typical advisor probably spent most of their time trying to calm clients and helping them avoid fear-based trading mistakes. There was little time for investment innovation.
"While we are still a small firm in the grand scheme of things, our growth story is really telling," Schweiss posits. "Just three years ago, the firm had about $2 billion in AUM. Today, we have over $5.5 billion, even after the challenging year in 2022. So, we have more than doubled our assets in that rocky three year period, and it's still hard to keep up with the demand."
As of early 2023, Sierra's TAMP solutions are distributed under the Ocean Park name on both the Envestnet and Orion platforms, as well as on all the major independent broker-dealer platforms, including LPL Financial, Cambridge, Advisor Group and others.
Schweiss says it is really common (and very rewarding from his perspective as a product distributor) for potential clients to call him and ask about the firm's models, only to learn they already have access to Sierra's solutions. "That ease of access is a big reason why we can grow the way we are growing," he concludes.
