An Essential Road Map for TAMP Users
Selecting a turnkey asset management provider (TAMP) to manage your clients’ assets is an investment decision. Thus, it triggers your fiduciary responsibilities to your clients.
The SEC made this clear in a Risk Alert issued July 21, 2021. The Commission also provided a roadmap for advisors to use in discharging their fiduciary duties to clients in selecting a TAMP.
A Simple Roadmap
The SEC identified three areas of focus in determining whether an advisor’s selection of a TAMP to manage a client’s assets is consistent with the advisor’s fiduciary duties.
- Is it in the client’s best interest? The advisor must have a reasonable basis for believing the TAMP program is in the best interest of the client. The advisor must make this determination both at the time of initial selection and on an ongoing basis.
- Are the disclosures adequate? The client should be fully informed about the costs and nature of the program, and the relationships among the parties. Adequate disclosure should appear in both the client agreements and the relevant marketing materials.
- Are written policies and procedures in place? There should be policies and procedures in place for determining whether a TAMP program is in the best interests of the advisor’s clients. And the advisor must demonstrate that the firm complied with them.
How to Comply
There is no one right way to design your due diligence policies and procedures. But here are some suggestions:
What to Collect.
- Overview and History. Ask about the firm’s mission, target market, history of growth, areas of specialty, lines of business, and notable accomplishments.
- Legal and Compliance. Collect the firm’s regulatory documents such as its Form ADV and ask about any past or ongoing legal proceedings or compliance issues.
- Policies and Procedures. Confirm that the firm has a code of ethics, business continuity/disaster recovery plan, and cybersecurity plan.
- Ownership Structure. Determine the firm’s ownership structure. Learn what other firms are affiliated with the TAMP.
- Collect information about the firm’s executive leadership, investment committee, portfolio managers, and those who will interact directly with your firm.
- Investment Products. Learn about the TAMPs investment philosophy, process, performance, risk characteristics, expense ratios, and account minimums.
- Ancillary Services. What services are offered besides asset management? Billing, performance reporting, risk profiling, tax transition strategies, to name a few.
- Trading Policies. Ask about the firm’s trading practices related to best execution, rebalancing, tax loss harvesting, and accepting special instructions.
- Operational Infrastructure. Learn where client assets will be custodied and what technology will be used to open and manage accounts and service clients.
- Collect information about all fees and expenses charged and who pays them. Look closely for hidden fees, expenses, and add-ons.
What to Do with It
There is one primary goal of the due diligence process—to make sure the selection of a TAMP to manage your clients’ assets is in the best interest of those clients.
Therefore, in reviewing the information you collect, consider the following:
- Do the products and services offered fit the needs of your clients? Are there restrictions or limitations on the TAMP’s offering that might negatively impact your clients?
- Are the TAMP’s investment products structured and managed so they have a reasonable likelihood of helping your clients meet their long-term financial goals?
- Do the investment products offered, or the structure or history of the TAMP, involve undue risks that can be avoided, minimized, or should be disclosed to clients?
- Is the firm qualified to provide the products and services offered? Specifically, who is managing the money? Do they have the right experience, credentials, and track record?
- Has the firm demonstrated that they can produce results that will give your clients a reasonable likelihood of reaching their long-term financial goals?
- Are the products and services offered priced fairly given their expected value?
- Are there any conflicts of interest that might arise from working with the TAMP that can be avoided, mitigated, or should be disclosed to clients?
- Considering all the available information, do you feel you can trust the TAMP to act in the best interests of your clients?
What You Should Do
Here are recommendations to help you live up to your fiduciary duties in selecting a TAMP.
- Recognize that selecting a TAMP to manage your clients’ assets is an investment decision and must be made in the best interests of your clients.
- Create processes and procedures for performing due diligence on any TAMP you use or consider using to manage client assets.
- Document your compliance with your due diligence policies and procedures.
- Make sure your Form ADV, client agreements, and marketing materials are accurate and complete in disclosing all material facts, including conflicts of interest.
- Periodically revisit the due diligence process to make sure it is still in your clients’ best interests to have their assets managed by the TAMP.
- Imagine yourself explaining the relationship with your TAMP to an SEC examiner. If you feel uncomfortable, you should probably rethink the relationship.
We Can Help
If you don’t have the pieces in place to make sure your TAMP selection process is consistent with the roadmap laid out by the SEC, let us know. We provide the advisors we work with a comprehensive due diligence package and a policies and procedures template.