Displaying items by tag: model portfolios

Morningstar recently completed its annual review of the US Model Portfolio Landscape. It noted that assets under management (AUM) in model portfolios reached $424 billion, a nearly 50% increase over the last 2 years. 

Some of the drivers of growth include enabling an easier investment process, providing access to institutional investors’ insights, and increased fund selection. It allows advisors to outsource elements of the investment management process to the extent that they feel comfortable. The net benefit is that it allows for more time to be spent on client engagement, financial planning, and growing the business. 

Another factor is lower costs. On average, model portfolios are 19 basis points cheaper than comparable mutual funds. In terms of market share, Blackrock and Capital Group are the leaders with $84 billion and $75 billion, respectively representing 37.5% of total AUM. Launching of new model portfolios has slowed as there is saturation in many areas like income, ESG, passive, or active. Instead, new launches are predicted to focus on greater customization such as optimizing tax efficiency.

Finsum: Model portfolio AUM has risen by nearly 50% over the last two years. Reasons for growth include easing the investment process management process for advisors, lower costs, and a greater variety of options.

A recent survey of financial advisors showed that separately managed accounts (SMAs) are seeing more traction in comparison to model portfolios. Only 22% of advisors plan to increase reliance on model portfolios, a 5% drop from the previous year. In contrast, allocations to SMAs are forecast to reach 26% in 2025 from 18% currently. The trend is more pronounced among advisors serving high net-worth clients who see allocations reaching 31% in 2025 from 23% now.

Some of the reasons cited by advisors in the survey for less interest in model portfolios were higher fees, underperformance, a need for customization, and more investment options. The survey is an indication that model portfolio uptake and growth have stalled as only 29% of advisors using model portfolios report increasing use over the past year. 

The survey was conducted by Cogent Syndicated in October and November of last year. The firm surveyed 403 registered financial advisors with an active book of at least $5 million. The report suggests that model portfolio providers are losing ground as many advisors and clients are gravitating towards direct indexing and SMAs due to their customization and tax optimization, while model portfolios fall short in these regards despite offering other advantages for advisors and clients. 

Finsum: A survey of financial advisors showed that model portfolio adoption has stalled. Here are why advisors are gravitating towards SMAs instead.

Expertly managing investments is crucial, but what truly sets exceptional financial advisors apart is fostering peace of mind. While algorithms excel at navigating markets, understanding the human dimension – your clients' hopes, fears, and aspirations – requires a different kind of expertise.

Peace of mind doesn't solely stem from stellar returns; it comes from knowing you have a confidante who understands your unique circumstances and offers sound, impartial advice.

How do you find the time to cultivate this connection when portfolio management is a full-time job? One option is to consider model portfolios: professionally managed options offering efficient diversification, transparency, and robust reporting. By outsourcing this task, you free up valuable time to focus on what truly matters – your clients.

Instead of being bogged down by portfolio construction, dedicate yourself to empathy, understanding, and building personalized solutions. Ask probing questions, acknowledge their emotions, and tailor your recommendations to their unique needs and values.

Remember, clients seek a partner who navigates the emotional terrain of financial planning with compassion, expert guidance, and a genuine interest in their well-being. By strategically prioritizing connection and leveraging technology, you can become an indispensable source of peace of mind, the most valuable asset any advisor can offer.

Finsum: Learn how model portfolios can enable advisors to reach the ultimate goal of helping their clients achieve peace of mind.

Assets under management, tied to model portfolios, are forecast to exceed $10 trillion by 2025. Some reasons for the category’s growth include increasing awareness and comfort among clients, a wider range of options that are enabling customization, and the advantages for financial advisors.

Currently, 70% of model portfolios are asset allocation models. Some advisors choose a hybrid approach with some of the portfolio allocated according to models with some portion remaining discretionary. Another important choice is whether there is an open or closed architecture. With an open architecture, advisors can allocate to a variety of funds, while closed architecture means that funds are from an individual asset manager. 

A growing segment is outcome-oriented models which can help clients achieve a precise goal such as generating income, reducing risk, or minimizing taxes. This is another way that model portfolios can achieve greater customization while still retaining the core benefits for advisors. 

Overall, model portfolios are rapidly gaining traction due to their ability to provide sophisticated solutions for advisors and clients. For advisors, it frees up more time and resources to spend on growing and managing the business while also deepening the relationship with clients. 

Finsum: Model portfolios are forecast to exceed $10 trillion in assets in 2025. Here are some of the reasons the category is growing so fast. 

Model portfolios represent an effective strategy for financial advisors to enhance efficiency within their practices by offering a standardized approach to portfolio construction and analytics. Models simplify the portfolio design process, allowing advisors to save significant research time and scale their services more effectively. Moreover, uniformity in portfolio construction promotes consistency, reduces biases, and improves regulatory compliance.

However, advisors must exercise due diligence in evaluating the credentials of model portfolio providers, considering aspects such as investment philosophy, historical performance, and associated fees. It is also essential to maintain flexibility for customization to meet the unique needs and risk profiles of individual clients.

While model portfolios offer considerable efficiency and informed decision-making advantages, their successful integration into a financial advisory practice requires careful consideration and a client-focused strategy. When utilized judiciously, model portfolios can significantly contribute to a financial advisory practice's operational efficiency and client satisfaction levels, albeit not as a universal solution but as a valuable component of a broader strategic framework.

Finsum: Explore how model portfolios boost advisory efficiency with standardized construction, analytics, and compliance, while ensuring due diligence and customization.