Robos and TAMPS Are Heading for a Showdown
The march of computers into wealth management is raising red flags that traditional brick-and-mortar advisors are facing a more highly-commoditized marketplace. At the same time, industry analysts warn that investment outsourcers – which deliver everything from portfolio oversight to back-office trading support – are also coming under fire from the rise of robos.
“Major players like Envestnet and SEI – who offer advisors one throat to choke, so to speak – are facing their biggest challenge in the past decade,” says William Trout, head of research for Celent’s wealth advisory group.
Such “turnkey” asset managers, or TAMPs, have grown over the past three decades as the breakaway RIA movement took off. That expansion has come both in terms of raw numbers as well as investment options, like those offered through third-party "overlay" managers and unified managed accounts.
In general, analyst Trout finds that most such outsourcers pitch portfolio management fees of less than 50 basis points to advisors.
But in a new research report, “Robo UMA: Automated Advice and the Battle for the Affluent Investor,” Celent cautions that traditional outsourcers could lose up to half of their customer base to hard-charging robos over the next decade. The consulting firm estimates in a separate report that by 2015, TAMP industry growth alone had surpassed $250 billion in assets.
By contrast, pure-play robo UMAs probably represent a U.S. marketplace hovering around $100 million in U.S. assets, Trout says. “But we expect this marketplace to represent a multi-billion dollar opportunity within a few years,” he adds.
A leading robo entering the TAMP and UMA field, according to Celent, is Folio Institutional, which earlier this year signed the largest U.S. credit union to its all-digital platform. Other up-and-coming robo UMA players listed by Trout are Motiff, Smartleaf, AdvisorEngine and Riskalyze.
“Traditional UMA providers are starting to fold robo technologies into their service menus, but it’s a very complicated process,” he says. “A key to their future success is going to be how well they’re able to fully update their legacy platforms.”
Such melding of new and old technologies represents a “significant” investment, says William Crager, president of Envestnet, which manages more than $100 billion.
The TAMP bought standalone robo Upside in early 2015 for an undisclosed price. But tech specialists at Envestnet see such a move as part of a bigger effort.
Building a digital presence today isn’t always just about monetary outlays for UMA managers, Crager suggests.
“The real challenge is how do you enable the advisor to work differently with clients,” he says. “It takes a different mindset that goes beyond the retail-only robo experience – you’ve got to create technologies that work seamlessly and efficiently for both firms and their individual end-users.”
With 54,000 advisors under its services umbrella now, Crager tells FA-IQ that Envestnet doesn’t expect to make more outside robo acquisitions. “At this point, we’ve got the size and technical capabilities internally to keep developing our own unique digital footprint,” he says.
At SEI, which manages more than $55 billion in advisor-related assets, development of robos is seen as a solely organic undertaking. “This is the core of what we see as our business strategy going forward – we’re building our technology platform from the ground up,” says Raef Lee, a managing director in SEI’s advisor network group.
A “dirty little secret” in the advisory business, he says, is that only about 50% of U.S. advisors do much in the way of rebalancing or directly manage portfolios. For those FAs who want to stick to a fairly “simplistic” investment process, Lee adds, today’s retail-inspired robos might make a “good option.”
But a broader mix of overlay investments, Lee says, along with highly-refined user interfaces are part of the “more sophisticated plumbing” that SEI’s network of 7,000-plus domestic advisors now require.
“We believe the pure robo piece – no matter how sophisticated the underlying technologies get – is only part of the picture,” he says. “The real trick for TAMPs is to make sure that the advisor, who sits in the middle between clients and asset managers, isn’t lost in any technology shuffle.”