Displaying items by tag: model portfolios

Model portfolios can help many financial advisors save time and focus more energy on their clients. They are based on the research, experience, and work done by asset managers and have been shown to offer better performance with less volatility during periods of market turmoil. 

The category is rapidly expanding with 18% growth over the last 5 years and expectations that total assets will exceed $10 trillion over the next 5 years. These offerings can also be customized according to every client’s circumstances. 

In terms of the best way to introduce model portfolios to clients, WisdomTree’s research shows that the best results are with smaller and tax-exempt accounts, where there may be less hesitancy when it comes to trying a new approach. 

The research also indicates that younger clients who are more open to risk will be quicker to embrace model portfolios. In contrast, clients who are closer to retirement age are less likely to change course. However, more than 50% were willing to use model portfolios if properly explained. 

The research also suggests that clients will be more willing to use model portfolios if the experience and credentials of the asset manager are emphasized.

Finsum: Model portfolios offer many benefits to advisors. The primary one is it frees up more time for client service. 

Often, there is a mismatch between how an advisor spends his or her time, and what drives ultimate success for the practice. By embracing technology and model portfolios, advisors can free up more time to invest in activities that build their business such as client service, marketing, and prospecting.

Surveys show that client retention and satisfaction are ultimately linked to frequent communication. However, many advisors are spending a chunk of their time managing portfolios and researching investment ideas. In fact, some research indicates that advisor-managed portfolios underperform especially in more volatile markets. 

Now, there are increasingly more complicated and sophisticated investment options which increases the burden on advisors and further compromises client services. With model portfolios, advisors can outsource large parts of the process such as research, portfolio management, and onboarding while providing more options and better performance. 

By outsourcing this function, advisors can also reduce costs and create greater efficiencies. Model portfolios can also help in other areas such as tax management which is another priority for clients. By centralizing information, it can identify opportunities across portfolios and lead to a more personalized experience. 

Ultimately, model portfolios are a way for advisors to leverage technology to drive better outcomes for their clients and business while creating a more efficient practice.

Finsum: Model portfolios offer many benefits to advisors. The primary one is it frees up more time for client service. 

Strive Asset Management, the upstart asset manager which was founded by Republican presidential candidate Vivek Ramaswamy, is launching its own model portfolio offerings. Strive is seeking to compete with Blackrock and Vanguard by solely focusing on economic factors when it comes to investing rather than also accounting for non-economic factors like ESG.

Strive’s model portfolios would also have the same investing and voting style as its funds. In its filing, the company said, “Strive engages in advocacy intended to encourage public companies to focus on economic factors in maximizing value for shareholders. This may include submitting or supporting shareholder proposals at public companies, advocating for changes in management or corporate structure at public companies, and a wide variety of corporate and/or public engagement.”

Its model portfolios would use existing Strive ETFs and one third-party ETF. In terms of fees, Strive would only receive its ordinary ETF fees and not charge any additional fees for its models. Currently, the asset manager has launched 11 ETFs with expense ratios between 5 and 49 basis points.

As of last month, these 11 ETFs had just over $1 billion in assets. The company aims to appeal to conservative-minded investors who are turned off by focus on ESG and other non-economic factors when it comes to investing and shareholder initiatives.

Finsum: Strive Asset Management is launching model portfolios as it looks to compete and take market share away from more established asset managers.

A lot of conventional wisdom regarding investing and wealth management has been questioned over the past couple of years. The best example is the traditional 60/40 portfolio. In the last couple of decades, this mix has been sufficient for returns and diversification. 

However, this is clearly not the case in the current environment of high inflation and rates, as both delivered poor returns in 2022. In recent months, long-duration bonds have added to their losses, while equity performance has been mixed. The idea that a portfolio of just bonds and equities can deliver proper diversification is no longer valid. 

Given that we have ostensibly entered a new era, advisors and investors have to be willing to rethink their assumptions and challenge conventional wisdom. One potential solution is the use of model portfolios. 

Model portfolios can be used to add exposure to more asset classes which are truly non-correlated. These include commodities, foreign currencies, real estate, quant strategies, alternative investments, private credit, etc. 

Allocations to these areas can lead to a truly diversified portfolio that can sustain performance in all types of environments with the appropriate level of risk. Additionally, advisors can offer more personalized products for their clients that are suitable for a wide variety of goals and needs.    

Finsum: For decades, 60/40 has worked in terms of diversification and returns. This may no longer be the case if we are in a period of entrenched inflation and higher rates.  

Model portfolios have been growing at a consistent rate for decades due to increasing adoption by younger advisors and more awareness among investors. Now, they have reached a size at which they are starting to affect markets especially when dealing with more illiquid securities. Currently, they collectively manage $3 trillion in assets under management (AUM).

It’s natural to consider the risks and opportunities as these ripple effects will only grow with model portfolios forecast to exceed $10 trillion in AUM over the next decade. In fact, recent unusual flows into various ETFs are often due to changes in the holdings of model portfolios.

Most model portfolios are constructed with ETFs. They are managed by investment teams of asset managers and can enable advisors to spend less time on portfolio management or security selection and more time on building their business and managing client relations. 

Since 2018, more than 400 model portfolio offerings have been launched. Most research shows that model portfolios tend to outperform advisor-managed portfolios. Ultimately, it’s an acknowledgement that beating the market is nearly impossible and that an advisors’ job is increasingly about financial planning rather than investing. 

Finsum: Model portfolio AUM is already in excess of $3 trillion. Here’s why the category is forecast to exceed $10 trillion over the next decade.