As financial planning firms continue their search for scalability and efficiency, more and more firms are choosing to outsource various aspects of their business, retaining only the core areas where they provide the most value.
As a result, Turnkey Asset Management Programs (TAMPs) have exploded in recent years, as more and more planning firms outsource their investment process to focus on their financial planning services. However, a new option is beginning to emerge: the Turnkey Financial Planning Program (TFPP), designed to be a holistic one-stop shop for starting a financial planning practice.
As signaled by LPL’s recent announcement to acquire Veritat, one of the early TFPP platforms, building an effective TFPP can be a valuable business proposition itself, in addition to being an appealing offering for the growing financial planning firm.
In fact, arguably the TFPP is a glimpse at the broker-dealer of the future—a core offering for financial planning firms, once the other parts that are unnecessary for a financial planning practice are stripped out—and may also represent a way for RIAs to grow as well. So forget the TAMP—it’s time for the TFPP.
The inspiration for today’s blog post is the recent announcement that LPL has acquired Veritat, as an expansion of LPL’s efforts to help advisors reach the massive middle market largely unserved by financial planners. What’s interesting about the acquisition is not LPL’s involvement, per se, but the tacit acknowledgement in the deal that what Veritat brought to the table was a unique platform for doing financial planning for the mass market.
In point of fact, I believe this is just the front end of what will be a new trend and a new way to grow a financial planning practice—just as TAMPs have exploded in popularity over the past decade, in the next decade the real growth opportunity is the TFPP. Growing firms will want to affiliate with them, and financial planners will want to affiliate with them.
What Is a TFPP?
As this is an emerging new trend, there’s no concrete definition of what a TFPP is, but I would characterize it as a firm that provides at least a majority (although not necessarily all) of the following:
- Template for a viable individual business model
- Infrastructure necessary to conduct a financial planning business (e.g., an investment custodian relationship, compliance support, capacity to sweep fees or process financial plan payments, etc.)
- Operational support
- Institutionalized investment management offering/story or access to outside TAMPs to accomplish the same goal
- Financial planning process, templates, and financial planning software
- Access to CRM and portfolio management software
- Branding, marketing support, and/or lead generation
- Practice management advice
- Access to fellow planners on the platform for support and community
While many of the offerings above are part of a typical TAMP, the TFPP platform is broader. It includes not only the core investment capabilities required for any type of AUM-style model, it also includes similar capabilities and support for the financial planning process and implementation, may include deeper practice management, branding, and marketing support, and is generally designed to be a holistic platform on which the entire financial planning practice is run, not just the investment part of the business.
TFPPs and the Search for Scale
Why would a financial planner choose to affiliate themselves with a TFPP? In a world: scale. The greatest challenge in running a financial planning practice in today’s environment is growing the firm to a point that investments in staff and infrastructure begin to scale effectively. In point of fact, most firms struggle so badly with a lack of scalability, that the trend towards outsourcing has exploded, because “renting” a piece of someone else’s scale is far more cost-effective than a small- to mid-sized firm making its own investment in staff, infrastructure, or other resources (and outsourcing elements of a financial planning firm is increasingly feasible in the digital age).
The availability of a TFPP gives the financial planner access to the benefits of scale, but without the piecemeal challenge of scraping the parts together one at a time (which, itself, is still a somewhat inefficient process).
Another upshot of the TFPP is that if the firm is also an ongoing larger financial planning practice itself, it may also be available to buy out the planner at the end of the road, providing a build-in exit strategy for the planner’s practice (and one that should command a valuation premium, given how easy it would be to transition the practice to another advisor already on the TFPP platform).
Notably, the reality is that broker-dealer firms often provide most or even all of the pieces of the TFPP. The caveat, though, is that the broker-dealer firms often also provide a lot of additional support and services—including a role in fulfilling the implementation of securities products, the original primary purpose of a broker-dealer—and may include alternate or additional lines of business as well. The inclusion in the broker-dealer of services—and their associated costs—that are unnecessary to the core financial planning offering has left most of them poorly prepared or uncompetitive with the rise of TFPPs.
In the second part of the post, we’ll examine a number of current and emerging TFPPs.