Sheryl Rowling’s home-built turnkey asset management platform launched a little over a year ago has already taken in more than $1 billion. Part of the reason? She charges advisors a flat fee to use it, as opposed to a percentage of assets like most other outsourced investment platforms.
Last spring, her firm Rowling & Associates, a San Diego-based registered investment advisor, launched InStrategy. Advisors get access to no-load mutual fund families without institutional minimums, a lineup of environment, social and governance funds, research and documentation that supports the Rowling & Associates strategies, and up-to-date white-labled reports they can share with clients.
Those offerings aren’t very different than what other TAMPs provide. But compared to other platforms that charge as much as 30 basis points, Rowling & Associates’ InStrategy costs a flat annual fee of $6,000.
Like advisors, asset managers have been experimenting with their pricing models. Some are starting to look at pay for performance. In the registered investment advisory space, Scott MacKillop’s First Ascent took an early lead in charging advisors a flat fee for outsourced investment management. “With today’s technology, it doesn’t cost any more to manage a $1 million account than it does a $100,000 account,” he told Wealthmanagement.com.
The economics should attract many smaller advisors who see assets under management-based fees eating into their bottom line. Fee-based advisors typically charge clients in the neighborhood of 1 percent of the assets they manage, so a third of that could be going to a TAMP if they use one. For small firms, the percentage is critical because they need every penny available to continue to grow their business. The larger firms might experience sticker shock because those platform fees can scale up quickly, even with price breaks for larger clients, Rowling said.
“I was really focusing on my own RIA and realizing that we put a whole lot time and effort into what goes behind constructing portfolios for our clients,” Rowling said about the idea for InStrategy. “I realized that many firms cannot afford it or don’t have the time to do that themselves and, because of that, a lot of them are forced into TAMPs or very expensive alternatives."
Rowling said her firm has 13 employees and half of them are involved in at least some part of the investment research from the portfolio allocation down to the funds selected for each asset class. She said the firm is active in its manager evaluation, leveraging resources like Morningstar, and that they visit and interview managers in person—a process happening on a rolling basis and reevaluated annually.
Gavin Spitzner, the president of Wealth Consulting Partners and an advisor to financial institutions, said he could even see large RIAs managing as much as $400 million interested in the platform. The strategies offered by Rowling & Associates could be a unique selling point for advisors seeking ways to differentiate, he said, and the improved operating margin would free up money for the firm to do other things.
Spitzner acknowledged there are “many flavors” of platforms that offer different levels of services. Not all platforms are going to be right for every firm, regardless of cost.
To be sure, InStrategy has a long way to go before challenging other platforms in the space. The market for TAMPs is dominated by a short list. The largest, Envestnet, has a 35 percent market share, or more than $141 billion in the fourth quarter of 2017, according to Cerulli Associates. The next largest platform from SEI Investments was about half the size at the end of last year, with $75.6 billion or 18 percent market share. The 10th largest TAMP, in terms of AUM, still had more than $1.3 billion but accounted for a fraction of a percent of the market.
Nonetheless, the rapid growth of InStrategy suggests that there is still opportunity to experiment with different delivery mechanisms for investment strategies, including price.
“I like the way they have packaged this offering, and am not surprised by the success they have had out of the gate,” said Matt Sonnen, the founder of consulting firm PFI Advisors, who hadn’t heard of InStrategy before Wednesday.
This isn’t Rowling’s first foray into technology for advisors. She built a rules-based tax rebalancing tool—Total Rebalance Expert —for her own firm, then opened it to other RIAs. She sold TRX to Morningstar in 2015. Rowling has been nominated as as a finalist in the category of Individual RIA Firm Leader – Innovation at the 2018 Wealthmanagement.com Industry Awards.