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Why a New TAMP for Small RIAs Has a Months-Long Waitlist

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“Our industry has gone on a scale bonanza” where large turnkey asset management platforms give short shrift to financial advisors with under $100 million in assets under management, argues Manish Khatta, president and chief investment officer of Potomac Fund Management, in an interview with ThinkAdvisor.

Enter: Potomac’s TAMP for the smaller independent FA. Called Union, the unified managed account platform serves up big-TAMP technology plus “human handholding,” Khatta says.

So far, the firm has signed up four advisors for Union. They have transitioned 50% of their books to the UMA, which was introduced this past July.

Response has been so strong that in the fall, Potomac started a months-long waitlist. Since Union’s launch, the boutique investment strategist that manages advisor portfolios has nearly doubled its AUM to about $300 million.

Potomac is also helping clients via its role as a model profitable virtual business, having operated 100% remotely for a year now. In the future, remote “may be the [industry] norm,” says Khatta.

Union, created for entrepreneurial FAs, is an all-in-one tech platform integrated with Potomac’s back-office service team to run core business functions with support from humans, not from the proverbial automated “phone tree.”

Khatta, 41, joined the Miami-based firm in 2002, the year after he graduated with a bachelor’s degree in finance from the University of Maryland. His investment strategies focus on quantitative trading systems: “Price is the only thing that matters,” he contends, adding that a “great example” has been the 2020 stock market.

ThinkAdvisor recently interviewed Khatta, speaking by phone from Fort Lauderdale, Florida. About smaller advisors’ pressing needs, he stressed that independents who have worked hard to build practices of $20 million to $50 million in AUM “deserve more than a call center” to help them.

Here are excerpts from our conversation:

THINKADVISOR: With the economic downturn and volatile stock market, how does being a quant help you?

MANISH KHATTA: “Just follow the price, dummy” is what I have on my screensaver. Quants ignore the economy when it comes to money management and the stock market: We believe the only thing that matters is price. Price is pure; there’s truth in price.

Have you seen that proven in 2020?

Yes. 2020 is a great example. The pandemic is arguably the greatest macro event ever, and the stock market just shrugged it off.

Why does “Just follow the price” work for you?

It cancels out the noise. If the stock market is going up and making new highs, who cares about what else is going on. The narrative doesn’t matter.

Have investment advisors’ needs changed because of the economic decline and attendant uncertainty?

Advisors have to be able to onboard and service clients digitally. It’s no longer a luxury; it’s a necessity to their practices. So those needs have really changed. In March, we did Zoom training for our advisors.

Why was training needed?

They might have had future tech enhancements on their roadmap planned for five to 10 years from now, but the pandemic forced those future enhancements to [be implemented] in six months. You have to execute on them now because of the environment we’re in.

What prompted you to launch the Union UMA [Unified Managed Account] TAMP this past July?

It was in response to [smaller] advisors talking to us about customer-service frustrations they were dealing with. Our industry has gone on a scale bonanza where anyone with under $100 million [in AUM] gets a call-center approach and tossed to the side. The advisors wanted large-TAMP money management technology but with handholding.

But why did you introduce Union in the middle of a pandemic?

Our firm was remote before the pandemic. So we were already set up for that, and it added more credence to what we’re offering. We can teach advisors how to run a remote firm, which, in the future, may be the norm.

What do the advisors you serve need most?

Advisors need guidance more than anything. Large TAMPs and large institutions give them a wide variety of money managers to use but without guidance. The advisors we talk to on a daily basis are yearning for human handholding from these firms to tell them the “how” behind constructing model portfolios — how to put them together — not just a list of a thousand managers to choose from.

Why don’t the large TAMPs provide all that, as you say?

I think sometimes it comes down to how the incentives — like revenue sharing — are aligned. But you have to be able to show advisors how to use the tech. This isn’t like some dating site where you can have all these model [portfolios] and no one to guide you.

What’s the main advantage that Union brings to the table?

It’s important to recognize that our technology isn’t the secret sauce. Advisors can get tech everywhere and any way they want. It’s the implementation of that technology and the client service that differentiates us. We’re not leaving advisors to their own devices to figure out how the tech works. Most [advisors] aren’t utilizing technology properly. We aren’t [about]: “Here’s the technology. Have a nice day.”

Is much of available technology typically going unused because FAs don’t know how to use it?

I think so. If an advisor can’t find something with the first couple of clicks, they get frustrated and only use what they know how to use.

Have you made any major changes to Union since the initial rollout?

The big thing is that we cut off new business about two months ago and put everyone on a wait list till, probably, the end of January. We took [on] those advisors who were most interested and where the fit was the best.

Why did you opt to interrupt the flow?

Since service is our number one priority, we learned that we can’t say yes to every piece of business that comes in. We’re making sure the advisors are a good fit for us and for them. We’re onboarding only four [FAs] per quarter. We don’t want to jeopardize service, which is a huge part of our offering.

What measures have you taken to protect your firm in this challenging time?

We’re 100% remote. We’ve essentially been remote for 10 years. We had a small office, which we closed at the end of [2019]. So we’ve been set up to prosper in this type of environment because of the technology we put in place to have a remote firm. Therefore, we can show advisors how to successfully operate remotely and profitably. We’re a real-life example of operating 100% remotely and digitally.

What’s your short- and long-term outlook for the economy and stock market?

We don’t make predictions. We’re quants: We follow momentum and ride trends until they disappear. Right now, the market is rewarding those who own stocks. Until that changes, you have to stay invested. We don’t have an outlook. What the pandemic taught everyone is: Don’t make predictions because you really don’t know what the market is going to do.

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