TAMPs race to build comprehensive wealth management platforms

The word “turnkey” means something much different to today’s turnkey asset management providers than it did when the phrase originated in the mid-1990s.

While plenty of TAMPs still focus on providing outsourced investment management to financial advisers, the real competition today is to build a comprehensive wealth management platform that checks every box for broker-dealers and registered investment advisers. 

After years of consolidation and fintech acquisitions, the TAMPs that solve the puzzle could be the ones that win future advisers and their assets. Those that don’t may find themselves acquired.

“You’re starting to see the pieces come together,” said Daniel Needham, president of Morningstar Wealth Solutions. “What that means for the market is you’re not going to going to have 20 [TAMPs]. You’re probably going to have a half-dozen.”

The pursuit of comprehensive wealth management is further blurring the lines between asset management firms and fintech vendors. “Product TAMPs” like AssetMark and SEI that traditionally focused on attracting advisers with proprietary investment strategies are working to increase their value with additional technology, while tech-centric “platform TAMPs” like InvestCloud and Orion Advisor Solutions have expanded their investment capabilities through acquisitions.

Then there’s Envestnet, defending its position as a market leader across both categories through a challenging year that included a (reported) potential sale and an (actual) corporate reorganization.

“What we are seeing here is essentially a great convergence,” said Scott Smith, director of advice relationships at research firm Cerulli Associates. “Just as wealth management providers create longer-term client relationships by increasing the [number] of solutions they can use with each client, wealth management platform providers want to move from vendors to partners by finding more ways to serve their client base.”

The stakes are high. Although the recent market downturn has put a dent in assets, TAMPs already manage $2.5 trillion, according to a report by The Wealth Advisor. That number is expected grow 25% annually.

ONGOING GROWTH

Even after steady, significant growth for more than a decade, industry insiders believe a number of market forces and industry trends will continue as tailwinds for TAMPs for the foreseeable future.

For example, between the growing number of high- and ultra-high-net-worth individuals, the largest generation in history entering retirement and a historic amount of wealth transferring to heirs, the U.S. wealth management market remains an incredibly attractive investment opportunity, said AssetMark CEO Natalie Wolfsen. With outside capital fueling the growth of mega-RIAs, roll-up firms and offices of supervisory jurisdiction, there’s more need than ever for the large-scale technology and investment services a TAMP can provide. This is especially true considering some of the next-generation technology platforms being introduced by the wirehouses.

“For AssetMark, we are really focused on helping the independents stay independent and using our technology and services to help them do so,” Wolfsen said.

There are 108,000 advisers and $10.4 trillion in assets expected to transition over the next 10 years, she said, citing Cerulli data. That creates an enormous opportunity for any firm that can help the next generation of advisers serve investors.

“As long as the U.S. is successful in growing and attracting talented people that want to work hard and do great things, all of that feeds into the growth of wealth management,” Wolfsen said.

However, the industry has struggled to bring in new talent to replace retiring advisers, even as the demand for advice soars, Morningstar’s Needham said. Advisers across the industry are being asked to serve more clients and more assets than ever before, making efficient outsourcing more critical than ever.

Meanwhile, consumer demand for more personalization of their investments, consolidation of accounts into a single location and increased access to tax optimization, estate planning, insurance, lending, alternative assets and cryptocurrency are putting more pressure on advisers than ever before.

“This is an industry where the ability to scale is going to be really important over time — not just assets on your platform but the breadth of capabilities you have at your organization,” Needham said.

THE INCUMBENTS

Though Morningstar has had a TAMP for more than 15 years to help advisers implement investment strategies powered by its research and data, it’s now looking to combine that with other parts of its business — back-office technology, data aggregation from ByAllAccounts, its business for individual retail investors and financial planning — to deliver a more comprehensive wealth offering to the industry.

While Morningstar remains a smaller player in terms of assets, with $42 billion under administration on its TAMP according to data from Tiburon Strategic Advisors, Needham believes its trusted branding in the market will help it carve out a larger market share among advisers. The company also already has connections with broker-dealers that rely on its business intelligence tool, Advisor Workstation, and recently made an investment in SMArtX to offer unified managed accounts, which now account for roughly 20% of assets on TAMPs, according to Cerulli.

“The firms we compete with are doing a fine job servicing clients, but from our perspective, we’ve got really strong data, research and insights,” Needham said.

Other incumbents continue to use M&A to expand what they can offer advisers. For example, AssetMark acquired Adhesion Wealth in June to expand the universe of investment models available to advisers, and picked up financial planning software Voyant in 2021 to build out a financial wellness offering, Wolfsen said.

As other TAMPs increasingly unbundle products and services to advisers, AssetMark claims it increases advisers’ operating margins by 17 points if they use AssetMark’s complete package of technology and investment management. Though there’s pressure for independent firms to pick and choose a suite of “best in breed” fintech, many prefer something that simply makes running a business easier, Wolfsen said.

“If you can show the value of bringing it together in a bundle, there’s value in that,” she said, though AssetMark does work with firms that would rather order à la carte than from AssetMark’s prix fixe menu. “For us, we want to meet advisers where they are and where they are going. There are absolutely benefits to outsourcing more rather than less.”

THE NEWCOMERS

On the other hand, Orion Advisor Solutions, the portfolio management fintech that entered the TAMP space in 2018 by purchasing FTJ FundChoice and merging it with CLS Investments, is doubling down on the à la carte approach. The company announced earlier this month that it would reorganize into three distinct teams — TAMP, technology and outsourced chief investment officer — to focus on further expanding each business.

“Historically, using a TAMP meant advisors were giving up control,” Mike Forker, Orion’s executive vice president of wealth management platform operations, wrote in an email. “Now, with upgraded and new technology, TAMPs can tailor their offerings to advisors’ needs, which opens up their services to advisors who historically wouldn’t have used a traditional TAMP.”

Orion’s acquisition of TownSquare Capital, which will power its OCIO business, is expected to push its TAMP AUA past $60 billion. The company is just one of several fintech companies that have turned toward asset management for growth, with white-label robo-adviser Marstone throwing its hat into the ring this month.

But perhaps the most impressive story of a fintech company stepping into the TAMP market is that of InvestCloud. A 2021 recapitalization merged the fintech startup with Tegra118, Fiserv’s former wealth management business, and Finantix, a global private bank. The company has continued making strides with technology, acquiring and upgrading financial planning stalwart NaviPlan from Advicent, and now has roughly $6 trillion in AUA across its digital platform, according to Tiburon data.

InvestCloud aspires to bring even more new TAMPs to the market powered by its technology, according to a statement from Mark Trousdale, the company’s chief marketing officer.

“We are a strong believer in the TAMP market,” Trousdale wrote in email. The company declined to comment further.

THE CURIOUS CASE OF ENVESTNET

InvestCloud’s rapid rise is especially remarkable for having surpassed Envestnet in terms of AUA on a platform TAMP, something considered unthinkable just a few years ago. Envestnet was a pioneer in separating its technology business from its investment management business and used this strategy to become an industry giant. Has it really been overtaken by a relative newcomer?

Not entirely. To start, Envestnet’s product TAMP business still has a massive lead, with $361 billion in AUM, according to Tiburon. The next largest is AssetMark, which reported $91 billion of AUM as of July 25.

Among the platform TAMPs, Envestnet still has a lead in net new assets and number of accounts, Tiburon’s data show.

“InvestCloud and Addepar have built up huge AUA through conversions and acquisitions. Nothing wrong with those strategies but don’t confuse those strategies with organic growth,” Charles “Chip” Roame, managing partner at Tiburon Strategic Partners, said in an email. He also noted that InvestCloud and Addepar focus on private banking and family offices, which aren’t core markets for Envestnet. (Addepar ranked third in AUA among platform TAMPs.)

However, things haven’t been entirely smooth for Envestnet recently. Reports emerged in February that the company was exploring a sale, and in April it announced that it would close its offices in Chicago and Seattle to fully embrace remote work. The company relocated its headquarters to Berwyn, Pennsylvania, and maintains offices in Denver and Raleigh, North Carolina.

After additional reports emerged that tumbling markets were making it difficult to close a deal, Envestnet instead announced a corporate reorganization — its second in four years — that saw President Stuart DePina depart.

At the same time, Envestnet continued to grow in 2022. It acquired business analytics software Truelytics in May, expanded its retirement offering in June with 401kplans.com, and in July purchased fee and billing fintech Redi2 Technologies.

Tom Sipp, Envestnet’s executive vice president of business lines, said the company maintains the broadest TAMP offering on the market, serving everyone from small firms that need a pure outsourced investment management solution to large financial institutions that need a custom technology offering.

While other entrants are taking either an asset management-led approach or a fintech-led one, Envestnet can do both, he said. 

“I would say that we’re clearly the market leader, we have unique scale and the ability to invest in our platform at an accelerated pace,” Sipp said. “We are taking share, seeing the benefit of the scale that we have and the broad set of solutions we’ve brought on the platform.”

LOOKING FORWARD

Despite the different approaches and positions in the market, executives at each company seem to have faith that not even some of the most difficult market conditions since the great recession can derail the growth of the TAMP market.

“I would say current market volatility affects overall growth in flows, but the overall trend is very much a tailwind,” Sipp said.

Orion’s Forker thinks rising interest rates could finally slow the breakneck pace of M&A in the TAMP industry, but otherwise fully expects the market to continue attracting assets.

One reason is that the new digital client communication technology that TAMPs introduced during the pandemic is now helping advisers engage with clients feeling spooked by market volatility.

“Good advisers are keeping their clients engaged, and good platforms are helping them educate investors,” Wolfsen said. “As long as we continue to serve advisers and save them time and effort, we’ll be in high-growth mode.”

TAMPs are also well-positioned to develop next-generation technology like artificial intelligence and machine learning, said Matthew Berkowitz, U.S. wealth management and asset management strategy practice lead at consultancy Capco.

“Leading TAMPs will be at the forefront of developing and implementing these tools, especially in the RIA space,” Berkowitz said.

Related Topics: AssetMark Inc., Envestnet, investcloud, Marstone, Morningstar Wealth Solutions, Orion Advisor Solutions, Tiburon Strategic Advisors