Dollars & Cents - TAMPs Vs. Hiring a CIO

Financial planners have a few options when it comes to investment management.  The first is self-management of client assets.  Many planners prefer not to manage investments, as their expertise lies in sophisticated planning strategies and relationship building.  As such, planners will delegate investment management to somebody else.  Traditionally, the choices have been to:

  1. Hire a full-time portfolio manager or chief investment officer to manage accounts in house
  2. Utilize a Turnkey Asset Management Program (TAMP)
There are pros and cons as well as costs associated with each option:

Using a TAMP - Benefits, Drawbacks, and Costs

There are various TAMP platforms which allow advisors to outsource the management of client accounts, freeing time otherwise spent on investment research and portfolio construction.  “Low-cost TAMPs” usually implement more simple “buy and hold” strategies and charge between 0.20-0.35% per year while more “traditional TAMPs,” which may offer more sophisticated investment strategies can charge between 0.35-1.00% each year.

Considering What Else TAMPs Include

Most TAMPs bundle additional features with their investment management platform that would otherwise need to be paid for by the advisor.  Some of these features include:

  • Performance Reporting
  • Billing
  • Client Portals
  • Proposal Generation
  • Trade Execution:  This is primarily a time cost, since most custodial platforms allow trades to be executed with no additional fees.
Considering low-cost vs. premium alternatives for software, as well as the value of time saved with TAMP technology, we estimate the full value of additional TAMP technology and time-saving features to to be between $9,000 – $22,000 per year.

Hiring a Full-Time Portfolio Manager (CIO) Versus a TAMP

There are clear benefits to having an in-house portfolio manager over a TAMP, including:

  • Better client optics:  Clients understand investments are being managed by their trusted expert advisor (and company) and don’t need to sign separate paperwork to authorize an unknown firm to manage their portfolio.
  • Communications:  An in-house investment expert can construct pitch books, market commentaries, and give thoughtful analysis on client/prospect portfolios as well as the market/economic environment.
  • Customization:  TAMPs, and especially low-cost TAMPS are limited in customizations beyond their model allocations.  This is especially the case for clients with legacy positions.  An in-house portfolio manager can fully integrate client customizations and legacy assets into a optimized and balanced investment strategy.
  • Having a client-facing investment expert:  An investment expert should be able to pitch, support, and defend company investment strategies.  This can be an invaluable asset for business development and retention.
  • Proposal generation:  A full-time portfolio manager is able to create investment proposals for prospects and clients, saving a planner additional hours of time.

The Problem: A CFA Charterholder Doesn't Come Cheap

A competent investment expert who can create, execute, and communicate sophisticated investment strategies will likely hold the Chartered Financial Analyst (CFA) designation.  The CFA charter is considered the gold standard for investment analysis and portfolio management, and designees undergo a grueling two to five years of coursework to pass the three six-hour exams.  Each test carries with it a low average pass rate, earning the CFA program as having some of the hardest exams in the world.

As such a full-time portfolio manager with the CFA designation doesn’t come cheap.  The average salary of a CFA charter holder comes in at $180,000, and closer to $250,000 after including the costs of benefits, payroll taxes, licenses, and liability insurance.

Comparing a TAMP vs. Hiring A Portfolio Manager

What we find is that TAMPs are likely better versus hiring a CIO for advisors with under $60M (traditional TAMP) to $128M (low-cost TAMP) in assets.  At this level of assets, advisors incur between $250,000 to $576,000 in costs per year.

Yikes.  That’s a lot of money.

WELLthPro Virtual CIO - All the Benefits of a CIO for a Low, Flat Fee

We offer an cost-effective alternative to TAMPs and hiring a full-time Chief Investment Officer.  WELLthPro’s Virtual CIO provides advisors access to best-in-class investment strategies and the expertise of an award-winning CFA, CFP, and CMT charter holder.  With packages ranging between $12,000-$30,000 per year, Virtual CIO is the ultimate TAMP replacement for independent RIAs with between $20-$250 million in assets under management.

The chart above includes the range of prices for various WELLthPro Virtual CIO tiers plus additional operational costs, which are usually covered by a TAMP, for a more fair comparison

Insourcing Savings and Outsourcing Stress

Most firms with over $20 million in assets can save money with WELLthPro and outsource the headaches of portfolio construction and due diligence.  Additionally, WELLthPro provides time for one-off prospect/client portfolio analysis, proposal generation, and investment  customizations (e.g. creating a strategy to integrate existing client positions into a a model).

Ready to Save Money and Have a Best-In-Class Investment Platform?

Click here to learn more about WELLthPro’s Virtual CIO plans, features, and pricing…

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