Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
Skip Schweiss

Portfolio > Portfolio Construction

Skip Schweiss: 2023 Is the Year of the TAMP

Your article was successfully shared with the contacts you provided.

What You Need to Know

  • Last year's market turmoil led even hesitant advisors to consider the benefits of outsourced investment management, Schweiss says.
  • Schweiss and others in the TAMP space say their offerings free up advisors to provide high-touch service.
  • Outsourced model portfolios can also help RIAs simplify their investment process, Schwab's Jake Gilliam says.

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.

A Dynamic Marketplace

Jake Gilliam, head of multi-asset solutions at Charles Schwab, shares Schweiss’ views about the challenges facing wealth management professionals who continue to take a traditional approach to the investment process.

In a late-2022 interview with ThinkAdvisor, Gilliam emphasized the growing importance of model portfolio programs and outsourced investment services supporting the RIA marketplace. He was particularly excited about Schwab Asset Management’s recent listing of 12 “Core Enhanced” model portfolios on the Nasdaq Fund Network, adding to the firm’s already substantial lineup.

Gilliam said the ongoing expansion of the firm’s model portfolio offerings was the culmination of a years-long project that started with RIAs seeking third-party reviews of their investment management process.

“Knowing our expertise in the marketplace, we had a lot of RIA firms coming in and asking us to do an X-ray review of their strategies and processes,” Gilliam explained. “These interactions led to some great discussions about how we could all work together to simplify the investment process and help them reduce costs and the time spent managing investments.”

Gilliam pointed out that many firms undergoing these reviews indeed had sophisticated and successful investment processes, but the increasing complexity of financial markets was demanding too much time and effort at resource-strapped firms.

He recalls one firm that went through a process review only to find out that it was using nearly 80 different model portfolios that its advisors had built in-house. Simply put, the firm could not keep up with the due diligence demands of managing so many different models in such a dynamic investment landscape.

Another common issue identified by the review process, Gilliam says, was the existence of various investment biases that had crept into firms’ internal models and investment approaches. For example, it was common to see significant style drift in models that had not been updated for some time.

“In the end, we heard from many firms that they just wanted new ways to outsource the investment piece and get entirely out of the management process on a day-to-day basis,” Gilliam explained. “That’s how we got to the current approach with our model portfolios, and we’re very optimistic about this approach moving forward.”

At this stage, Schwab’s models are available through a growing number of distribution platforms, including Envestnet and the TD Ameritrade platform, which is now owned and operated by Charles Schwab. (Schwab expects to complete the TD Ameritrade platform integration over Labor Day weekend.)

“This is really a reflection of the biggest overall trend I’ve seen in the RIA world in the past five or 10 years,” Gilliam says. “Progress in this space is about simplifying the investment process so that the advisor professionals can refocus on financial planning.”

According to Gilliam, Schwab has already seen partnering RIAs derive significant value from adopting outsourced model portfolios.

“We actually see advisors of all stripes getting significant value from this approach, not just the smallest shops,” he says. “From the breakaway startup advisors to the established RIAs with billions in assets, the efficiency and performance gains can be significant.”

(Pictured: Skip Schweiss) 


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.