TD Ameritrade Institutional has gone live with its new Model Market Center, a suite of model portfolios available on its iRebal platform, initially announced at last year’s LINC conference. Over 1,000 registered investment advisors who use iRebal have signed on to the marketplace since its soft launch in late October. The Model Market Center, which is free to registered advice advisors, currently has eight different model providers and 62 models to choose from.
The Model Market Center allows RIAs to pull from a “supermarket” of third-party model portfolios while still retaining trading discretion over the accounts. Traditional turnkey asset management platforms, known as TAMPs, take full discretion of investment management and charge overlay fees.
“Advisors had a philosophical shift a few years ago, where they stopped trying to compete on performance,” said Danielle Fava, director of product strategy and development at TD Ameritrade Institutional. “So although [RIAs] don’t talk about that being in their value proposition anymore, no one ever gave them a low-cost or no-cost tool to outsource investment management.
“The Model Market Center—especially TD Ameritrade’s because there’s no cost to the advisor—really fills that gap and gives advisors another alternative to unbundle the TAMP services.”
So far, the managers on the platform include Anchor Capital Management Group, CLS Investments, Cambria Investments, Goldman Sachs Asset Management, Russell Investments, State Street Global Advisors, Wilshire Associates and WisdomTree Investments. There are several more in the hopper, Fava said.
The marketplace is an open access platform; as long as a manager meets the firm’s criteria and agrees to its terms, they can come on. To meet the criteria, managers must be GIPS-compliant; manage a minimum number of assets; meet a minimum requirement for education and investment experience; provide performance reports to Morningstar; have no internal conflicts with TD Ameritrade; and pay a participation fee.
Several managers use the custodian’s new lineup of commission-free ETFs for their asset allocations, including State Street and WisdomTree. Russell uses the firm’s no-transaction fee mutual funds.
Several firms have launched variations of a model portfolio marketplace to advisors in recent months, including Orion Advisor Services, Riskalyze, Oranj and Morningstar. Some say these marketplaces will challenge TAMPs.
While Fava doesn’t believe TAMPs will disappear, there is a large group of advisors who don’t use them, as many RIAs, by nature, don’t want to give up control. They want the freedom to make decisions that meet their investment philosophy.
For example, Fava recently attended a workshop where someone was pitching a TAMP service, and one advisor raised his hand to comment.
“He said, ‘I’ve been telling my investors for years that we don’t invest in commodities because of X, Y, and Z,’” she recalled. “‘And then the manager comes in and they add some commodities to the portfolio, and now I look very disjointed to my client, and I have no way to control that. And then I just kind of have my tail between my legs.’”
“Based on his comments, I had this realization that you are an RIA because you value choice and freedom. And the TAMP market definitely serves a purpose, but you are giving up discretion, and you have basically no say what’s going on in a client’s account.”