"Unfortunately, too many advisors spend their time inefficiently trying to do everything themselves. It's little wonder they feel exhausted at the end of the day."

Outsource It!

By John Bowen

There's no question about it: As an advisor, time is one of your most valuable assets. How you spend your time is one of the biggest drivers behind your overall success—or failure.

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Unfortunately, too many advisors spend their time inefficiently trying to do everything themselves. They choose to go it alone when dealing with all aspects of their business—from asset allocation to investment policy statements, performance reporting, investment selection, customer service and day-to-day business operations. It's little wonder they feel exhausted at the end of the day.

This DIY (do-it-yourself) approach is also one reason why so many advisors aren't more successful. Consider that nearly one-third (32.4 percent) of advisors surveyed by CEG Worldwide earned less than $100,000 in 2004. By contrast, a select group of advisors—just 4.5 percent—earned more than $500,000 that year.

FROM SOUP TO NUTS

Although these top advisors approach their businesses in different ways, they all understand that the key to building a successful asset management firm is to focus on developing great relationships with clients. If there's a function that doesn't further this mission, they outsource it to a third-party provider.

Increasingly, these superior advisors are turning to turnkey asset management providers—TAMPs—for help. Assets in TAMP programs have soared from $4 billion in 1994 to approximately $200 billion today, according to Tiburon Strategic Advisors.

TAMPs can be an ideal option for advisors, especially those seeking to deliver comprehensive wealth management solutions. That's because TAMPs offer, to varying degrees, a complete investment solution that typically includes client profiling, asset allocation guidelines, mutual fund and manager selection, performance reporting and back-office and marketing support. Some offer managed account platforms.

The appeal of this soup-to-nuts approach is obvious: It allows you to farm out your noncore tasks (but still supervise them) and refocus your attention on building great client relationships and gathering more assets—an approach that's far more effective than trying to cover all the bases yourself.

The upshot is that advisors using TAMPs find it much easier to run their practices. For example, a mere 5 percent of TAMP-affiliated advisors worry about delivering high-quality investment management products and services, according to the previously mentioned survey of more than 1,000 advisors conducted by CEG Worldwide. In stark contrast, roughly three-fourths of advisors not using TAMPs reported this as a key concern in their business.

Likewise, just 23.6 percent of advisors using TAMPs said they were anxious about market volatility, compared with 65.2 percent of non-TAMP advisors. Advisors using a TAMP-based approach tend to provide a more comprehensive suite of solutions and therefore don't have to focus as much on investment performance. TAMP-affiliated advisors also reported being less concerned than their peers about dealing with compliance and regulatory issues (39.8 percent versus 61.7 percent, respectively).

TAMPs have become adept at providing help in the four key areas of support that advisors require: products and services, marketing and sales, practice management and technical issues. They recognize that advisors are indispensable to the affluent marketplace and that, to work with you, they need to provide you with real value that goes beyond simply offering products.

Of course, it is important to locate the right TAMP for your business from among the many providers out there. When CEG Worldwide asked 399 TAMP-affiliated advisors which features were most important in a TAMP, here's what they told us:

• service quality and responsiveness (71.9 percent)
• breadth of manager selection (59.1 percent)
• depth of the management team (57.4 percent)
• reporting capabilities (51.1 percent)
• level of business development support (50.4 percent)
• investment philosophy and process (49.6 percent)

The first step is to identify well-managed providers that share your investment philosophy. Next, find out which of those providers will do the best job in helping you grow your business and become more focused on client relationships. Then determine which TAMPs offer the features that will give you the foundation for a solid, reliable and profitable relationship over the long term.

This evaluation process is crucial for obvious reasons—selecting the right TAMP will have an enormous impact on your business. Therefore, to evaluate TAMPs, you need to focus on a key question: Is the TAMP equipped to help you properly serve your market? To succeed, you need to work with an institution that can truly support you. What's more, because the cost of switching financial services providers can be quite high, it literally pays to make the right decision the first time around.

VALUING A TAMP

In particular, your methodical approach to assessing the value proposition of a potential TAMP should focus on the following four major kinds of value that financial institutions try to offer to differentiate themselves from their various competitors:

Product value. Does the TAMP's product solution create real value for your firm and your clients? When evaluating a TAMP, find out if its product selection includes vehicles that appeal to affluent investors now, such as hedge funds, individual securities, REITs and separately managed accounts, as well as products that are of growing interest to the affluent—such as private equity. Just as important, is the TAMP incentivized to sell certain products over others? Because most financial markets have matured and most products have become commoditized, there is often little room for effective differentiation through product offerings. That said, product value can be significant in the early stages of a new product's development—if it's available before the entire industry has adopted it.

Service value. This includes the value-added marketing programs, training programs, technology and practice management support aimed at helping you become more efficient and successful. Find out if the TAMP provides education on business-building issues such as developing referrals and joint ventures with other professionals, as well as seminars or information on select target markets and handouts for clients.

Does the TAMP offer technical support on a range of topics that may be of interest to clients (such as philanthropy, retirement distribution planning, asset protection, tax planning, business succession and so on)? These offerings can help you create deeper relationships with your best clients.

Personnel value. Besides helping you with the day-to-day running of your practice, how well do the TAMP's representatives help you think strategically, grow your business and increase your income? Does the TAMP provide training in professional areas that interest you, as well as provide training for your staff?

Image value. TAMPs are largely unknown to most investors, but the reputation and image of the TAMP you choose may be important from the perspective of your clients and prospects. How experienced is the TAMP's management team and what are the partners' areas of expertise? Also, what is the level of advisor turnover at the TAMP?

COST CONSIDERATIONS

After you've sized up a potential TAMP's total value, you'll want to consider the costs you'll incur by working with them. There are four major cost factors to assess.

Monetary costs. Consider the amount of money involved in changing your systems to incorporate a TAMP's offering, or switching costs if you're replacing a current provider with a potential TAMP partner.

Time costs. These can be significant with some financial institutions. How rapidly can the relationship begin, and how soon will it make a difference? You want a TAMP that will do all it can to make you more efficient—not suck up your already limited time.

Energy costs. These are usually low. Advisors don't typically have to spend much of their time working with reputable TAMPs.

Psychological costs. There should not be a struggle or conflict between your professional identity and partnering with a given TAMP. In the end, always remember that your most important job is to deliver exceptional client service. Time and time again, we've seen that superior advisor-client relationships are the key to building a world-class business.

If you can maintain those deep and meaningful relationships with clients while also effectively taking care of every other duty piled on your plate—from compliance to investment management and reporting—then you should go ahead and do so. But it's the rare financial advisor who is capable of juggling all those balls at once. If you're like the vast majority of advisors, chances are you'll find that a TAMP will help you save time, make more money and take your practice to the next level of success.