Outsourcing Asset Management (Part 1)

This wealth management domain into which I am trying to break is quite elusive. I have been told repetitively how “unique” and “impressive” my story is. Yet I still have no job offers, nobody asking me to sign up, and no road map to a future. At least I have gained a bit more clarity with the concepts of “TPAM” and “sub-adviser.”

Further research into these concepts crystallizes some suspicions not directly identified thus far. For a while I have believed financial advisers to be mainly salespeople. The very existence of sub-advisers and TPAMs supports this belief. While fiduciary duty means putting client interests ahead of the firm, non-trading activities like marketing and raising assets do the opposite because they help the IA business move forward without contributing to client investment performance.

Mac MacKillop at First Ascent Asset Managers (a TPAM) writes about how advisers conceptualize outsourcing. One advisor described himself as a coach drafting players for different positions. His job is to find the best player (TPAM) to accomplish a certain job (investment objective) and to hold that player accountable (hire/fire). Another advisor described himself like a general practitioner (GP) charged with caring for the client’s overall [financial] health. He makes referrals to specialists (TPAMs) with expertise in particular areas (investment objectives) just as a GP refers patients to vetted oncologists or surgeons. He described finance like medicine where nobody has the time or resources to expertly manage all facets.

MacKillop interviewed another advisor who said:

     > I explain that I cannot do both the planning and provide
     > the level of due diligence and research required of a
     > prudent investment manager, so we hire people who
     > specialize in that area.

One advisor’s perspective emphasized conflict elimination:

     > I tell them that by bringing in managers who are
     > specialists in their area I put myself on the [client’s]
     > side of the table… I get to stay objective and help
     > my client hold the managers accountable rather than
     > trying to explain away my own performance.

The implementation of external managers makes good sense for opening doors to dedicated strategies, funds, or alternative investments that may be in the client’s best interests.

I will discuss outsourcing prevalence in another blog post.