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Delivers tailored investment solutions and exclusive opportunities to help financial advisors optimize portfolios and meet the unique needs of high net worth clients.

Premier Investment Manager: Whether you’re an individual client or financial advisor, we offer internally managed strategies and access to external expertise to optimize your investment portfolio.

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RIA Services: We offer comprehensive support to independent advisors, simplifying the process of launching and growing their practices.

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From captivating branding to innovative marketing strategies, we help financial professionals stand out in a crowded market.

Marketing & Design: From captivating branding to innovative marketing strategies, we help financial professionals stand out in a crowded market.

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We provide tailored solutions and expert guidance to help financial professionals navigate complex insurance products and maximize client outcomes.

Life, Annuities & Back Office: We provide tailored solutions and expert guidance to help financial professionals navigate complex insurance products and maximize client outcomes.

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Specializing in providing crafted, tailored strategies and unwavering exceptional service to assist clients in achieving their diverse array of financial goals.

IAR Solutions: Specializing in providing crafted, tailored strategies and unwavering exceptional service to assist clients in achieving their diverse array of financial goals.

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Our 1031 Exchange & DST Program provides unmatched expertise, resources, and support to navigate these investment strategies confidently.

Our 1031 Exchange & DST Program provides unmatched expertise, resources, and support to navigate these investment strategies confidently.

A Smarter 401(k) utilizes our “My Risk IQ” method, offering personalized investment guidance through five risk-based allocations.

A Smarter 401(k) utilizes our “My Risk IQ” method, offering personalized investment guidance through five risk-based allocations.

Experience innovative planning with modern solutions that strategically align your clients’ risk tolerance with maximizing net retirement income.

Experience innovative planning with modern solutions that strategically align your clients’ risk tolerance with maximizing net retirement income.

Our tailored program is for CPAs and Fiduciary Advisors aiming to offer innovative financial services to attract High Net Worth individuals.

Our tailored program is for CPAs and Fiduciary Advisors aiming to offer innovative financial services to attract High Net Worth individuals.

Cutting-Edge Advisor Solutions

Cutting-Edge Advisor Solutions

Premier Investment Solutions

Unlock access to exclusive investment opportunities and customized strategies designed to optimize portfolio performance and meet the sophisticated needs of high net worth clients.

Premier Investment Solutions

Unlock access to exclusive investment opportunities and customized strategies designed to optimize portfolio performance and meet the sophisticated needs of high net worth clients.

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Explore our RIA Services program and embark on the journey of starting your own Registered Investment Advisor (RIA).

RIA Compliance & Services

Explore our RIA Services program and embark on the journey of starting your own Registered Investment Advisor (RIA).

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Benefit from tailored strategies, innovative designs, and targeted campaigns crafted to enhance your brand visibility and attract clients.

Marketing & Brand Development Services

Benefit from tailored strategies, innovative designs, and targeted campaigns crafted to enhance your brand visibility and attract clients.

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Access specialized expertise and resources to effectively incorporate life insurance and annuities into your clients’ financial plans.

Life Insurance & Annuity Solutions

Access specialized expertise and resources to effectively incorporate life insurance and annuities into your clients’ financial plans.

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Gain the expertise and support needed to navigate regulatory requirements and deliver exceptional financial guidance to your clients.

Specialized IAR Programs

Gain the expertise and support needed to navigate regulatory requirements and deliver exceptional financial guidance to your clients.

Options for Utilizing or Engaging a Third-Party Investment Adviser (TPIA)

Jun 7, 2024 | A Smarter Way To Invest, Investment

In our previous article, “Why Outsourcing Your Money Management May Be A Smart Move,” we discussed the various benefits of outsourcing investment management to professional third-party advisers. From freeing up time to focus on client relationships to leveraging the expertise of seasoned investment managers, outsourcing can be a strategic move for many financial advisors and RIA firms.

Now that you’re familiar with the advantages of outsourcing, it’s crucial to explore the various options available. Understanding these options will help you make an informed decision tailored to your clients’ needs and your business objectives. In this article, we’ll delve into four primary methods for engaging a Third-Party Investment Adviser (TPIA):

  • Exchange Traded Funds (ETFs)
  • Separately Managed Accounts (SMAs)
  • Turnkey Asset Management Platforms/Programs (TAMPs)
  • Model Market Centers

Each of these options offers unique benefits and can be suited to different types of investment strategies and client preferences. Let’s take a closer look at each one to help you determine which might be the best fit for your practice.

Exchange Traded Funds (ETFs)

What are ETFs?

ETFs (Exchange Traded Funds) are investment funds traded on stock exchanges much like individual stocks, offering the flexibility of intraday trading. They are designed to track the performance of specific indices, sectors, commodities, or other asset classes, making them suitable for diverse investment strategies. ETFs combine features of both mutual funds and individual stocks, providing broad market exposure and the ability to trade shares throughout the trading day at market prices.

ETFs have gained significant popularity due to their versatility, cost efficiency, and ease of access. As of 2023, the global ETF market exceeded $11 trillion in assets under management, highlighting their widespread acceptance and reliability (etf.com). This growth is driven by the increasing adoption of ETFs by both retail and institutional investors seeking to diversify their portfolios and gain exposure to a wide range of asset classes.

ETFs can be categorized into two primary types:

  1. Passive Index Funds: These ETFs aim to replicate the performance of a specific index, such as the S&P 500, by holding the same securities in the same proportions as the index. This passive approach minimizes trading and management costs, making these ETFs a cost-effective option.
  2. Actively Managed Funds: Unlike passive index funds, actively managed ETFs have portfolio managers who actively select and trade securities with the goal of outperforming a specific benchmark or achieving a particular investment objective. While they offer the potential for higher returns, they also come with higher management fees.

Benefits of ETFs

  • Diversification: ETFs offer investors access to a broad range of assets within a single fund. This diversification helps mitigate risk by spreading investments across multiple securities, sectors, or asset classes. For example, an ETF tracking the S&P 500 provides exposure to 500 large-cap U.S. companies across various industries, reducing the risk associated with investing in individual stocks.
  • Professional Management: ETFs are managed by experienced professionals who ensure that the portfolio aligns with the fund’s objectives. There are two primary styles of management within ETFs:
    • Passive Index Funds: These funds follow a rules-based approach, aiming to replicate the performance of a specific index. This minimizes management intervention and trading costs.
    • Actively Managed Funds: These funds have managers who actively select and trade securities to outperform a benchmark or achieve specific investment goals. This approach can potentially offer higher returns but typically comes with higher fees.
  • Liquidity: ETFs are highly liquid, allowing investors to buy and sell shares throughout the trading day at market prices. This intraday trading capability provides flexibility and enables responsive portfolio management. High liquidity also generally results in narrow bid-ask spreads, which reduces transaction costs for investors.
  • Transparency: Most ETFs disclose their holdings on a daily basis, providing investors with full visibility into the securities held within the fund. This transparency allows investors to understand exactly what they own, making it easier to manage and monitor their portfolios.

Drawbacks of ETFs

  • Limited Customization: ETFs follow a predefined investment strategy, limiting the ability to tailor investments to individual client needs. Unlike SMAs, where advisors can select specific securities to meet clients’ unique preferences and goals, ETFs offer a one-size-fits-all approach.
  • Tracking Error: Passive Index Funds may experience tracking error, where the ETF’s performance deviates from the performance of the underlying index. Factors contributing to tracking error include management fees, transaction costs, and changes in the index composition.
  • Market and Liquidity Risks: ETFs are subject to market risk, meaning their value can fluctuate with the performance of the underlying assets. Additionally, ETFs focusing on niche markets or less liquid assets may face liquidity challenges, leading to wider bid-ask spreads and higher transaction costs. During periods of market stress, even broadly traded ETFs might experience liquidity constraints, making it harder to buy or sell shares at desired prices.

Who Should Use ETFs

ETFs are ideal for advisors seeking broad market exposure and cost-effective investment options. These funds provide access to a wide range of asset classes, sectors, and geographic regions within a single investment vehicle, making them suitable for diversified portfolios. ETFs are particularly beneficial for clients who want to capture overall market performance without the complexity of selecting individual stocks or bonds. The low expense ratios associated with ETFs make them an attractive choice for cost-conscious advisors. As of 2023, the average expense ratio for ETFs was 0.18%, significantly lower than the 0.50% average for mutual funds, highlighting their cost efficiency (Investment Company Institute).

ETFs also offer high liquidity, allowing advisors to buy and sell shares throughout the trading day at market prices. This liquidity ensures that advisors can quickly enter or exit positions, making ETFs a flexible and responsive option for portfolio management. For clients seeking tax-efficient investment solutions, ETFs provide advantages due to their unique structure and in-kind creation/redemption process, which helps minimize capital gains distributions.

Separately Managed Accounts (SMAs)

What are SMAs?

SMAs (Separately Managed Accounts) are investment portfolios managed directly by a Third-Party Investment Adviser (TPIA) on behalf of individual clients. Unlike pooled investment vehicles such as mutual funds or ETFs, SMAs offer a high degree of customization to meet specific client needs and goals. This personalized approach allows financial advisors to tailor investment strategies to the unique preferences, risk tolerances, and financial objectives of each client. As of 2023, the SMA market had grown to over $1.7 trillion in assets, highlighting the demand for personalized investment solutions (Cerulli Associates).

SMAs provide clients with direct ownership of individual securities within their accounts, offering greater control and transparency over their investments. This structure enables clients to see exactly which securities are held in their portfolio and the rationale behind each investment decision, fostering a higher level of trust and engagement.

Benefits of SMAs

  • Customization: SMAs allow for highly tailored investment strategies to meet specific client needs and preferences. Advisors can select individual securities and implement bespoke strategies that align with each client’s unique risk tolerance, investment objectives, and financial goals. For instance, a high-net-worth individual may prefer a strategy focused on sustainable investing, which can be precisely executed through an SMA.
  • Transparency: SMAs provide direct insight into holdings and transactions, offering clients full visibility into their investments. Clients can see exactly which securities are being bought and sold, fostering trust and confidence in the investment process. This transparency allows clients to understand the rationale behind investment decisions, enhancing their engagement and satisfaction.
  • Professional Management: SMAs benefit from active oversight by experienced managers who can make real-time adjustments to the portfolio. Professional managers actively select and trade securities, aiming to optimize returns and manage risks effectively. This active management is particularly beneficial in volatile markets, allowing for timely rebalancing and strategic shifts.

Drawbacks of SMAs

  • Limited Flexibility in Blending Strategies: Traditionally, SMAs follow a specific investment strategy managed by a single TPIA, limiting the flexibility to blend different strategies or managers within a single account. Clients seeking exposure to multiple investment strategies may need to open multiple SMAs, each managed independently, which can complicate portfolio management and increase administrative overhead.
  • Uncommon Practice of Strategy Blending: Although there have been recent developments in the SMA space allowing for more blending of strategies, this practice remains relatively uncommon. Some advanced platforms and TPIAs now offer the ability to combine different strategies within a single SMA, but these options are not yet widely adopted across the industry. A 2023 survey indicated that only 20% of advisors actively use blended strategy SMAs, highlighting the rarity of this feature.

Who Should Use SMAs

SMAs are ideal for clients who require highly customized investment approaches and value transparency and direct management. These accounts allow advisors to tailor investment strategies to each client’s unique needs, preferences, and financial goals. SMAs are particularly suited for high-net-worth individuals who may have specific objectives, such as sustainable investing, concentrated stock positions, or complex tax situations. According to a 2023 report by Capgemini, high-net-worth individuals are increasingly seeking personalized investment solutions, with 70% expressing a preference for customized portfolio management (Capgemini).

The transparency offered by SMAs is a significant advantage, providing clients with full visibility into their holdings and transactions. This level of detail fosters trust and confidence, as clients can see exactly where their money is invested and understand the rationale behind investment decisions. Additionally, the active management aspect of SMAs allows for real-time portfolio adjustments, ensuring that investments remain aligned with clients’ objectives and responsive to changing market conditions. For clients needing both personalized strategies and professional oversight, SMAs provide a compelling investment solution.

Turnkey Asset Management Platforms/Programs (TAMPs)

What are TAMPs?

TAMPs (Turnkey Asset Management Platforms/Programs) are comprehensive investment management solutions that provide a suite of services beyond those offered by traditional SMAs. They facilitate direct investment management services and offer ancillary services such as billing, performance reporting, and administrative support. TAMPs integrate advanced technology to streamline the investment management process, making it easier for advisors to manage client portfolios effectively. According to a 2022 Cerulli Associates report, the TAMP market is expected to grow by 8% annually, reflecting increased adoption among advisors (Cerulli Associates).

TAMPs are designed to handle various operational tasks, enabling financial advisors to focus more on client relationships and strategic growth. These platforms often include tools for client reporting, compliance, and portfolio rebalancing, providing a comprehensive, all-in-one solution for investment management.

Benefits of TAMPs

  • Unified Managed Accounts (UMAs): TAMPs provide the ability to blend different strategies and TPIAs within a single account through UMAs. This allows advisors to combine various investment approaches tailored to meet the specific needs and goals of their clients. The flexibility to blend strategies can lead to more personalized and diversified portfolios, enhancing the overall investment experience.
  • Comprehensive Services: TAMPs handle complex billing, performance reporting, and administrative tasks, freeing up advisors to focus on client relationships and strategic planning. These platforms offer detailed performance analytics and seamless billing processes, ensuring that all operational aspects are efficiently managed. The comprehensive support provided by TAMPs enhances operational efficiency and allows advisors to deliver a higher level of service to their clients.
  • Flexibility: TAMPs offer access to a wide range of investment strategies and managers, providing advisors with the flexibility to tailor their approach to each client’s unique needs. Advisors can select from various investment options, ranging from passive index strategies to actively managed funds, to create customized portfolios. This flexibility enables advisors to adapt to changing market conditions and client preferences, ensuring that their investment strategies remain aligned with their clients’ goals.

Drawbacks of TAMPs

  • Potential Lack of Control: By outsourcing investment management and operational tasks to a TAMP, advisors may relinquish some control over the investment process and client interactions. This can lead to potential disconnects between the advisor’s investment philosophy and the strategies implemented by the TAMP, which may not always align perfectly with the advisor’s or clients’ expectations.
  • Complexity: The extensive features and capabilities of TAMPs can introduce complexity into the investment management process. Advisors may need to spend significant time and effort to learn and effectively use the platform, potentially leading to a steeper learning curve and increased operational burden.
  • Cost: TAMPs often come with higher fees compared to other investment management options due to the comprehensive services they provide. These fees can include platform fees, manager fees, and additional costs for ancillary services, which can add up and reduce overall investment returns for clients.

Who Should Use TAMPs

TAMPs are ideal for advisors seeking a comprehensive, all-in-one investment management solution and those wanting to leverage multiple TPIAs and strategies efficiently. These platforms handle various operational tasks, such as billing, performance reporting, and administrative support, allowing advisors to focus more on client relationships and strategic growth. According to a 2023 report by Fidelity Investments, 47% of financial advisors are integrating TAMPs into their practice to improve operational efficiency and scalability (Fidelity).

TAMPs offer the flexibility to blend different investment strategies within a single platform, making them suitable for advisors who want to provide customized solutions to their clients. The ability to access a wide range of investment managers and strategies ensures that advisors can tailor portfolios to meet specific client goals and risk tolerances. This comprehensive approach simplifies the investment management process and enhances the overall client experience. For advisors looking to streamline operations while offering diverse and tailored investment options, TAMPs provide an efficient and effective solution.

Model Market Centers

What are Model Market Centers?

Model Market Centers provide access to multiple TPIAs (Third-Party Investment Advisers), allowing for a wide range of investment strategies and management styles, typically structured as SMA relationships. These platforms enable financial advisors to diversify their clients’ portfolios by integrating various TPIAs and strategies within a single account. As of 2023, over 50% of advisors reported using Model Market Centers to diversify their clients’ portfolios and enhance investment outcomes (InvestmentNews).

Model Market Centers offer a comprehensive solution for advisors seeking to provide tailored investment strategies. By leveraging the expertise of multiple professional managers, these platforms facilitate the creation of robust, diversified portfolios that align with clients’ specific financial goals and risk tolerances.

Benefits of Model Market Centers

  • Variety: Model Market Centers provide access to a wide range of TPIAs and investment strategies. This variety allows advisors to choose from numerous professional managers and investment approaches, enhancing the diversity and robustness of client portfolios. By having a broad selection of TPIAs, advisors can better match their clients’ investment goals and risk profiles.
  • Customizability: One of the standout features of Model Market Centers is the ability to pick and choose strategies to fit specific client needs. Advisors can combine different TPIAs and strategies within a single platform, creating highly personalized investment solutions. This level of customization ensures that clients receive tailored portfolios that align with their unique financial objectives and preferences.
  • Fee Options: Model Market Centers offer a range of fee options, from high to low, and even zero-fee strategies depending on the TPIA and investment approach. This flexibility in fee structures allows advisors to manage investment costs effectively and select strategies that best meet their clients’ budgetary constraints. The ability to choose from various fee options helps advisors provide cost-effective solutions while maintaining access to high-quality investment management.

Drawbacks of Model Market Centers

  • Complexity in Management: The wide variety of TPIAs and strategies available can lead to complexity in managing client portfolios. Advisors may need to spend considerable time and effort to evaluate and select the most suitable strategies for each client. According to a 2022 survey by Financial Planning magazine, 42% of advisors reported that the complexity of managing multiple TPIAs and strategies was a significant challenge, potentially leading to increased administrative burden and oversight requirements (FinancialPlanning).
  • Potential for Higher Costs: While Model Market Centers offer a range of fee options, the cost of combining multiple TPIAs and strategies can add up. Advisors must carefully consider the aggregate fees when constructing portfolios, as higher overall costs can erode client returns. Data from Cerulli Associates in 2023 indicated that advisors using Model Market Centers often faced total fee structures that were 20-30% higher than those of single-manager solutions, impacting the cost-effectiveness of these platforms (Cerulli Associates).
  • Performance Monitoring and Consistency: Ensuring consistent performance across multiple TPIAs and strategies can be challenging. Advisors need to continuously monitor and evaluate each TPIA’s performance to ensure alignment with client goals. This ongoing oversight is crucial to maintain consistency in investment philosophy and performance, and to address any discrepancies between expected and actual portfolio outcomes.

Who Should Use Model Market Centers

Model Market Centers are suitable for advisors seeking diverse investment options and the ability to leverage the best strategies from multiple TPIAs. These platforms provide access to a wide array of TPIAs and investment strategies, allowing advisors to create robust, diversified portfolios. According to a 2023 report by InvestmentNews, over 50% of advisors reported using Model Market Centers to diversify their clients’ portfolios and enhance investment outcomes (InvestmentNews).

Model Market Centers are ideal for clients with varied investment goals and preferences, offering the flexibility to pick and choose strategies that align with their specific needs. This customization ensures that portfolios are tailored to each client’s unique financial objectives, risk tolerance, and investment horizon. Advisors can combine different TPIAs within a single platform, providing a comprehensive and integrated investment solution that leverages the expertise of multiple professional managers.

Choosing the Right Investment Management Approach

Choosing the right investment management approach is vital for aligning with clients’ specific needs and goals. Advisors should consider factors such as customization, transparency, flexibility, and cost when evaluating these options. By understanding the unique advantages and limitations of each approach, advisors can make informed decisions that enhance client satisfaction and investment outcomes.

Taking the time to thoroughly evaluate ETFs, SMAs, TAMPs, and Model Market Centers will help advisors determine the best fit for their clients’ investment objectives, ensuring they can provide high-quality, tailored investment solutions that drive long-term success. For personalized guidance and support in selecting the best investment management approach, consider reaching out to A Smarter Way To Invest, a proud member company of the Entry Point Advisor Network. Our team of experts is dedicated to helping you achieve your clients’ financial goals with customized, professional solutions.

Contact us today to learn more about how we can assist you in optimizing your investment strategies. Visit our website or call us at (810) 588-6178.