Model marketplaces and TAMPs both service different elements of the advisory space and offer concentric features. A model marketplace can be a standalone service, but it is also a key element within a TAMP’s overall product suite, making up one of several solutions within a TAMP framework. So, which one is right for you?
A standalone model marketplace typically offers advisors the ability to follow a strategy, meaning the provider will send you trades when relevant to update your client accounts. This requires the advisor to trade each account to facilitate the update and handle all aspects of the trading process. This is great solution for smaller advisors who do not need to trade hundreds or thousands of accounts and for those looking to allocate to static allocation models that may only update their portfolio a few times per year. Also, costs tend to be very low, particularly those model marketplaces that are supported by the managers providing the strategies, which is particularly important as the advisor bears any cost and the burden for trading the accounts. Of course, strategies that are trading ETFs and mutual funds will still incur fees associated with those products which can be higher than portfolios consisting of single stocks.
Turning our attention to TAMPs, they present a wider offering that includes a model marketplace, along with several other solutions relating to automated trading, automated rebalancing and drift management, substitutions/exclusions, cash management, tax harvesting, and more. A TAMP is designed to help advisors run their entire investment management business.
To be clear, the cost of a TAMP is typically higher than that of a model marketplace, with client accounts being charged for the services provided. As it relates to a TAMP’s model marketplace, that higher fee provides a number of services. First is the diverse field of strategies that include portfolios of single stocks, ETF/mutual funds, ADRs, and/or options. There are also trading styles that include long only, long only with a cash or options hedge, long/short, and short only. There is also the interface to source, research, build portfolios, and create portfolio proposals for clients on the fly. Once a decision has been made to make an allocation, an advisor can simply click the box, and choose the account and amount. From that point forward, the strategy is automatically executed into the client account by the TAMP in real-time. Any updates provided by the model manager will be automatically executed in real-time across all accounts and custodians. This feature eliminates the need for advisors to trade any accounts and ensures that dispersion between accounts, and between the model and the accounts, is kept at an absolute minimum. This automated real-time trading feature is extremely helpful for active strategies that frequently move in and out of market positions. It is also an effective tool for advisors who look to take advantage of market situations by actively positioning market exposure leading up to events like the Presidential election or COVID-19.
A TAMP will also go beyond the access to and trading of models to customize client exposure. Exclusions can be added by the advisor on an account-by-account basis (typically used for ESG overlays, position concentration, or trading blackout periods) and the allocation is monitored for allocation size drift. If the position becomes too big or too small based on the preset parameters, the subsequent trades are automatically generated and executed subject to a one-click approval process.
TAMPs then go on to offer a number of other features that help to streamline the investment management process and remove the burden of administrating client accounts. These include an automated cash management application that provides scheduling and custom treatment of requirement minimums distributions. The same feature also dollar cost averages for cash additions to the account and allocates capital based on custom instructions. Tax harvesting tools can also be implemented to analyze long term and short term gain/losses. Advisors are given the option to choose individual tax lots that suit their desired outcome and the TAMP will trade the account(s), being sure to accommodate for wash sale rules. The tax harvester also enables substitutions during this time.
Model marketplaces have a place in the managed accounts industry and cater to specific needs of smaller advisors. However, a model marketplace is one part of the services that a TAMP provides, along with a complete offering that automates processes, reduces firm expenses, and streamlines the investment process of managing client accounts.
For more information about TAMPs and the SMArtX model marketplace strategies, visit the SMArtX Advisory Solutions resource page at https://www.smartxadvisory.com/resources/