COMPARING OCIOS VS. TAMPS
The marketplace for outsourced investment solutions can be a very confusing place. In an industry that loves acronyms, the world of outsourced solutions is a melting pot that boils down to a bowl of alphabet soup. Between TAMPs, UMAs, SMAs, and OCIOs it’s hard to figure where one begins and other ends.
To start, TAMP (Turnkey Asset Management Program) is a catch-all term. As the name suggests, it encapsulates turnkey asset management solutions that allow advisors to outsource portfolio construction and/or management to spend more time focused on other areas of the business. At the time of their rise in the 1990s, this was a cutting-edge and unique solution—however, the development and wide scale adoption of technology has vastly expanded the scope of solutions in the space. This expansion has created such a wide range of solutions that today the term TAMP can mean just about anything. This can create a dilemma for advisors who, while recognizing the benefits of outsourcing their investment management, are unsure what solution is ideal.
An Outsourced Chief Investment Officer (OCIO) is a strategic partner that provides comprehensive investment management service. Long utilized by institutional investors, family offices, and endowments, OCIOs have been gaining steam among RIAs. Serving as an outsourced investment team that manages a client’s investment portfolio and provides customized investment solutions tailored to meet specific client needs, an OCIO can be a more cost and risk-effective alternative to hiring an in-house Chief Investment Officer.
When comparing an OCIO to a TAMP, it is important to understand that an OCIO falls under the TAMP umbrella and is a third-party asset management program. However, there a several features that distinguish an OCIO within the TAMP universe. Three key differentiators include:
Traditionally, TAMPs have provided a one stop shop for advisors looking to outsource portfolio construction and management. Typically, they provide (or provide access to) a set of portfolios for an advisor to choose from, with little to no flexibility to make changes. Conversely, an OCIO provides a varying degree of flexibility when it comes to implementing their solutions. While an OCIO may provide a set of core models, they can make tweaks or changes when needed. For example, if a client transfers an account with a large taxable gain, an OCIO can manage around that position by using it as a proxy for similar exposure in the model, or it can hold the position “outside” the model while still considering its risk profile. For advisors serving clients with unique positions and needs, an OCIO may provide an added level of flexibility they can not get from a TAMP.
Traditional TAMPs offer a product and advisors and their clients can either take it or leave it (this relates to the “turnkey” part of the TAMP). There is often no collaboration between the two parties to draft a solution that is uniquely designed for that client. But collaboration goes deeper than that with an OCIO solution. An OCIO is positioned as a part of your team. Just like an in-house CIO would, an OCIO can advise investment policy, draft customized material, and handle all trading responsibilities.
The collaborative relationship with an OCIO serves to expand the scope of services that a partner firm is able to provide. For example, an OCIO can provide the capacity and experience to review incoming investment opportunities that are identified by the advisor or their client. As HNW clients often hold or are presented with outside investment opportunities, an OCIO can help the firm and the client properly evaluate these one-off investments, whether the firm will manage it or not. This extra touch helps a firm strengthen client relationships and solidify their role as their client’s go-to advisor for all things in their financial life.
An OCIO relationship is designed to mimic the experience of having a fully staffed investment team within your organization. This team of experts with different specializations throughout the investment landscape provides not only valuable knowledge but also deep institutional relationships throughout the industry as well. These relationships can be invaluable in sourcing new opportunities, gathering information in uncertain times, and generally bolstering the network available to advisor and clients. While a general TAMP certainly has investment expertise, you can equate the difference to a concierge medical practice versus a typical internist.
This expertise can also be valuable for advisors looking to gain access to alternative investment exposure for their clients. By their nature, alternatives are complicated and present a unique set of risks. The time and resources needed to effectively implement and manage alternative positions at scale requires a deep understanding of the investment’s structure and risk. An OCIO with expertise in the alternatives space can help an advisor differentiate their offering without taking on undue operational and investment risk.
Today, it is possible to outsource just about any individual aspect related to investment management. The TAMP universe offers broad and expansive options. Within this universe, an OCIO provides a comprehensive outsourcing solution to not only optimize the asset management process, but also serves to broaden and expand capabilities across the firm. As a strategic partner, an OCIO provides the needed scale for a firm to grow their business while still providing powerful and differentiated solutions to attract, win, and service clients.
To learn more about the power of partnering with Fountainhead Asset Management, visit our website at fountainheadam.com. Enhance Your Story With Us.
IMPORTANT DISCLOSURE: The information contained in this report is informational and intended solely to provide educational content that we find relevant and interesting to clients of Fountainhead. All shared thought represents our opinions and is based on sources we believe to be reliable at the time of publication. While we continue to make these reports available, we do not update past reports in light of subsequent events. Nothing in this letter should be construed as investment advice; we provide advice on an individualized basis only after understanding your own circumstances and needs.