Americas Best TAMPS 2024 - 44

2024 AMERICA'S BEST TAMPS
INVESTMENT POLICY STATEMENT (IPS)
Outlines the advisor's appropriate
investment strategy in terms of asset
allocation for a particular client. Restrictions
identify holdings that may be either
inappropriate for or preferred by the client.
* Restrictions may be based on personal
beliefs (e.g., no tobacco stocks),
significant current holdings through
inherited equities or stock options, or
grants to be exercised as a result of
working for a publicly traded company.
* Risk: The IPS must identify an asset
allocation which establishes a client's
unique risk profile based on age, risk
tolerance (willingness to absorb market
losses in exchange for greater market
gains), and investment objectives.
* Suitability/Fiduciary Standard:
Suitability is the standard used by
registered reps when selecting asset
classes for individual clients. Registered
Investment Advisors (RIAs) and trust
officers use the fiduciary standard, where
their clients' objectives are supposed to
be placed ahead of their own, and where
they adhere to the Prudent Investor Rule.
MANAGER DUE DILIGENCE
TAMPs frequently provide an extensive list
of asset management products including
mutual funds, ETFs, funds of funds, SMAs
or UMAs. What each of these have in
common is that the assets are managed
by an " asset manager " whose job is to
provide the models and manage the
underlying assets to a specific strategy.
As part of vetting the products, TAMP
providers conduct a detailed examination
of the manager and firm in terms of track
record, experience, performance, AUM, risk
management, reference checks, compliance
history and externally audited financial
statements.
MODEL OR SMA
A model is any investment methodology
used to allocate funds across securities and
asset classes, theoretically encapsulating
the thoughts of multiple asset managers.
An SMA (separately managed account) is a
portfolio of individual securities managed by
a single asset manager.
MODELS (MODELS-BASED
APPROACH)
Models - also known as model portfolios
44
or models-based approach - represent
an investment methodology that requires
asset managers to download investment
strategies into a sponsor firm's UMA
platform. This enables the sponsor to
conduct the actual trades, as opposed
to the SMA approach where the asset
manager conducts the trades. If the
model is part of a UMA, the SMA sleeve is
incorporated into the UMA. Models-based
approaches are more profitable for UMA
sponsors due to wide omnibus trading,
and better for clients as they allow for
incorporation of an overlay methodology
for tax and trading efficiency. The loss of
trading revenue may make asset managers
reluctant to participate in a models-based
environment, resulting in the manager
having to decide whether or not to
participate in a sponsor's UMA program.
Some asset managers also fear a loss
of intellectual property. Models may be
updated on the UMA platform in real time or
in batch mode.
MUTUAL FUND WRAP (ACCOUNT)
Also known as a mutual fund advisory
program, a mutual fund wrap account
provides multiple mutual funds (selected
from a large pool) based on asset allocation
guidelines. The investment advisor designs
a portfolio of funds and manages the funds
as a single account for a single annual fee of
85 bps to 150 bps. The fee is an alternative
to individual mutual fund sales charges.
* Fund of Funds: Mutual fund-like
vehicles made up of shares of alternative
investments (usually hedge funds)
where individual investors have their risk
reduced through diversification. A fundof-funds
approach also allows investors
who might not qualify for " accredited "
status to invest in hedge funds.
ONBOARDING
The process through which a prospect
becomes a client and is brought onto the
investment advisor's platform with assets
retitled or moved to a new custodian.
The process must comply with SEC
recordkeeping rules and the US Treasury,
know-your-customer (KYC) and anti-money
laundering (AML) rules. The process often
involves setting up new asset types on
the system or adding detailed household
information, and eventually reconciling
between system and custodian records.
TM
OPEN ARCHITECTURE
In the extreme case, open architecture
requires that the investment platform enable
and support any investment managed by
any asset manager. While such a goal is
desirable, the fact that each asset manager
must undergo comprehensive due diligence
to be included on the platform makes it
impractical. As a result, many program
providers claim " open architecture " as a
feature while offering dozens to hundreds
of asset managers and products on their
particular platforms.
OUTSOURCING
The process of contracting a necessary
business function or process to an
independent organization, and ceasing to
perform that function or process internally;
instead, purchasing it as a service. TAMPs
are an investment management outsourcing
solution.
OVERLAY
The methodology used by the wealth
advisor to provide the best in tax and
trading efficiencies to their clients. The effort
can be manual or technology-based, and
comes in a variety of " flavors. "
* Overlay Tools vs. Overlay Managers:
Overlay tools are software designed to
ensure tax and trading efficiency and are
integrated with the managed account
platform. Overlay managers deliver an
investment advisory service to achieve
the same objectives as the tool, subject
to relevant regulatory and fiduciary
requirements. Overlay managers may
offer a more complete solution but with
reduced control for the advisor, and
typically at a higher cost.
* Passive Overlay vs. Active Overlay:
In passive overlay, asset managers have
operational control over their sleeves;
the wealth advisor's overlay role is
limited to account-level allocation and
reconciliation. Some asset managers are
uncomfortable with having their models
modified by different players and fear loss
of their intellectual capital. Active overlay
management relies on a single overlay
tool or manager to assume discretion
for all of a client's accounts. In active
overlay, managers send their modelbased
portfolios to the overlay manager
who then trades at the account level.
Active overlay results in improved tax
Americas Best TAMPS 2024

Table of Contents for the Digital Edition of Americas Best TAMPS 2024
