Four questions hybrid advisers should ask their asset management platform

The turnkey asset management landscape continues to undergo seismic shifts following recent news that one of the industry’s major players would exit the business. The move left other so-called TAMPs scrambling, eager to capitalize on this unforeseen opportunity to fill the vacuum left behind and increase their share of the market.

The benefits of TAMPs for advisers, and the independent broker-dealers that make them available, include research, client proposals, account analytics, investment management options, operational conveniences, compliance tools and performance reporting. However, offering one, two or even multiple TAMP platforms isn’t all broker-dealers should provide true independent, hybrid advisers.

As the landscape changes, all independent advisers — especially hybrid advisers — should revisit what kind of asset management services they really need. Do they have partners who ensure maximum choice and flexibility to grow their practice in the next three to five years?

Here are four questions to ask when evaluating the strengths of an independent broker-dealer’s asset management suite of solutions:

1) Is the widest possible set of financial reporting options available at flexible price points? No two clients are the same. Even laser-focused niche practices have clients with vastly different wealth management needs for investment solutions and portfolio construction strategies. Additionally, investors have unique expectations for viewing and evaluating progress. A strong broker-dealer partner offers reporting solutions that meet a wide range of investor and adviser needs for consolidated and performance reporting.

A client who is invested in only insurance or commission-based products may have very basic financial reporting needs. Some investors are satisfied with a portfolio snapshot, basic “up or down” comparisons, or cash flow reports. Those with more complex investment portfolios or with a head for statistical evaluation, however, require more data and deeper analytics. Advisers need to know not only whether their broker-dealer enables this level of choice, but if it’s at various price points. Do they push only one solution — theirs — at a fixed cost, or offer a range of solutions to meet the book of business and personality of each adviser and client?

2) Is proper technology support offered for advisers who choose to manage client assets on their own? It’s one thing for an IBD to give an adviser the freedom and flexibility to manage their own client assets. It’s another for them to provide advisers with tools to take on this task effectively.

Without robust block trading or modeling and rebalancing tools, for instance, it’s almost impossible for advisers to quickly and efficiently manage multiple client accounts at one time. Though efficient trading capabilities are crucial for hybrid firms, not all broker-dealer platforms allow advisers adequate flexibility to take discretion, if desired, nor do all provide the technology that exists in the industry to leverage those efficiencies. In the end, it’s the end client that suffers the most from broker-dealer rigidity.

3) Is a true open architecture approach permitted? Hybrid advisers typically have three options for managing client assets: They can do it on their own with the support of one or multiple third-party service providers; they can utilize their broker-dealer’s proprietary solution; or they can use a combination of the two.
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Ultimately it comes down to what approach works best for clients. It’s critical that the adviser, who is uniquely suited to make this determination, has the freedom to choose from a variety options.
Advisers deciding on independent broker-dealer-based asset management solutions should be extremely wary of any firm that pushes only its own homegrown solutions rather than offering a solid level of “air time” to credible third-party options. Proprietary push is anathema to the independent hybrid model.

4) Does the compliance function seem like a true partner to advisers? Financial advice is a heavily regulated industry and, yes, the regulatory framework has the laudable goal of protecting the end client. But the question advisers need to ask is whether the compliance and supervision policies of the broker-dealer take a “check the box” approach to asset management support, or whether the broker-dealer’s compliance personnel act as true partners. Protecting and educating investors and advisers is a serious business, as is following current (constantly changing) regulatory requirements. But a common sense attitude toward evaluating what can and cannot be done is infinitely better than strict boilerplate responses. If a IBD can’t accommodate a request, do they (1) offer an alternate solution and (2) endeavor to explain their rationale. A healthy respect for the other’s position fosters a partner with compliance, rather than an adversarial relationship.
Almost invariably, independent hybrid advisers are where they are professionally because they are seeking maximum choice and flexibility for their clients and their businesses. But as with most anything else, over time inertia sets in. It’s only natural. Advisers are busy with day-to-day management and sometimes they unwittingly allow the quality of their offerings to become stale or dated.
But with major changes swirling around them, now is an ideal time for every independent hybrid adviser to take good look at their practice and determine whether all their asset management needs are truly being met.
Michael C. Bryan is senior vice president of Triad Advisors Inc., a hybrid RIA-focused independent broker-dealer that is a wholly-owned subsidiary of Ladenburg Thalmann.