Michael Kitces recently asked, on his Twitter account, when are we going to stop talking about “robos” and start calling them investment software platforms?
His point: What we’ve been calling institutional “robo” platforms are nothing more than software with interesting new features that automate things that advisors have traditionally been doing by hand. Like, for instance, combining DocuSign with LaserApp with account aggregation with an onboarding questionnaire, so that account transfer forms are automatically and accurately populated and ready to be signed online. Or like automatically rebalancing client accounts to tolerances that advisors set up themselves.
At the recent T3 conference in Anaheim, I heard people saying that the “robos” (which I will henceforth refer to as online account platforms) are nothing more than the latest version of TAMPs – turn-key asset management platforms.
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But is that true? Certainly, both make it more convenient to manage investments. But there are some important distinctions. The online account platforms are fundamentally software, while TAMPs represent a delegation of the asset management duties to a third party?
Let me say, before we go further, that I’m not a great fan of the TAMP concept, which I think gained traction because independent firms realized they could create asset management platforms that were greatly superior to the hastily-constructed services that broker-dealers were providing to their reps.
To help you understand my lack of fan-dom, let me tell you the story of a salesperson I knew back in the 1990s. Throughout his career, this person had sold just about every bad product imaginable, which is another way of saying he chased the highest commissions he could find, which were invariably attached to limited partnerships that eventually blew up and annuities with 20-year surrender charges that never could have made money for their investors.
The founders of a new TAMP got hold of this superb salesperson as he was fighting off client lawsuits, and showed him a whole new revenue opportunity. Instead of getting 8% up-front to sell products, he could switch to selling their managed money services and charge… whatever he wanted! In his case, he chose to put 1.5% a year into his pocket, on the logic that if he could keep his customers invested for five years, he’d end up making about the same (let’s call it a commission) as any of the other products he was selling – and after that everything would be gravy. The TAMP, meanwhile, charged almost 2% a year for the portfolio management and reporting.
When I ran into this salesperson at an annual conference, and asked him about the lawsuits, he introduced me to this new “product,” and happily told me: “I’m now a fee-only financial planner!”
So how do we make a distinction between a TAMP – which I would characterize as a product, like an annuity or non-traded REIT – and an online account platform – which is software like the semi-automated rebalancing engines like iRebal, Trade Warrior or Total Rebalance Expert?
I’d like to hear your thoughts on the subject. Here are my preliminary ideas.
By Bob Veres, read the full article by here.