Displaying items by tag: model portfolios

Many advisors and wealth managers are switching to model portfolios and taking a more hands-off approach when it comes to constructing and managing clients’ portfolios. The upside of this is clear as it gives advisors more time to spend on client relationships and building their business. According to surveys, about 35% of an advisors’ time is spent on managing and researching investments.

Yet, it doesn’t make sense as an advisors’ ultimate success depends on retaining and recruiting clients and helping them reach their financial goals rather than the incremental gains that can be theoretically achieved by spending more time researching investment ideas. 

According to Cerulli Associates and covered by Kenneth Corbin in Barron’s, many large brokerage firms are also embracing model portfolios and encouraging brokers to spend more time with clients. Cerulli’s research shows that in down years for the market, 60% of advisor portfolios underperform the market, undercutting the rationale for more active management. 

 68% of brokerage firms are now moving away from advisor-constructed portfolios. In the future, they see advisors serving more as ‘holistic financial planners’ rather than stock-pickers or portfolio managers. Over long periods of time, model portfolios outperform most advisor-generated portfolios with much less risk or concerns about compliance or conflicts of interest. 

Finsum: Large brokerage firms are encouraging advisors to embrace model portfolios especially given lackluster returns of many advisor-built portfolios and the extra time and energy it gives for client service.

Many advisors have embraced model portfolios as it frees them from a portion of their portfolio management responsibilities. Instead, they are able to focus more time and energy on areas like client relationships, prospecting, and planning which are shown to be more important to building a successful practice, client retention, and helping clients reach their goals.

However as covered by Jeff Benjamin for InvestmentNews, some advisors are rejecting this approach. Instead, they believe that they can add value to their clients by remaining involved in portfolio management. Many of these advisors apply their expertise when it comes to selecting individual stocks for their clients’ portfolios. 

For instance, Ryan Johnson of Buckingham Advisors will manage the large-cap equity portion of clients’ portfolios, but when it comes to small-caps, international, or fixed income he relies on mutual funds and ETFs.  

Many of these advisors cite reasons such as tax management, higher concentration, and greater client involvement in their portfolios. That being said, these advisors acknowledge that it’s more work and comes with greater risk. Yet, they are willing to accept the tradeoff. 

Finsum: Model portfolios are taking a greater share of the industry as it frees advisors up from portfolio management responsibilities. Yet, some are not so eager to embrace the trend. 

SEI is adding 3 new strategies to its lineup of model portfolios, using ETFs from Dimensional Fund Advisors. Now, SEI offers 24 model portfolios, encompassing a broad range of categories and styles. 

SEI launched its model portfolio offerings in 2022. Currently, the firm manages about $1 trillion in assets which include hedge funds, mutual funds, and separately managed accounts. As of June 2023, the firm had 7,400 independent advisors using its platform. 

In a statement, SEI said that the additional offerings would increase flexibility and help investors meet their objectives. It sees upside in combining SEI’s expertise in asset allocation and breadth of advisors with Dimensional’s fund management and research. 

Asset managers are increasingly boosting their model portfolio offerings for advisors. Currently, about $5 trillion of assets are managed by model portfolios with expectations that this figure will exceed $10 trillion by the end of the decade. 

Model portfolios give advisors and investors access to sophisticated strategies for minimal costs. It also allows advisors to spend less time on portfolio management and more time on servicing clients and growing their business. 

Finsum: SEI is adding 3 ETFs from Dimensional Fund Advisors to its model portfolio lineup. In total, SEI now offers 24 model portfolios to its advisors.

Category: Wealth Management; 

Keywords: #clients; #advisors; #model portfolios;

For Bloomberg, Nir Kaissar shares his thoughts on why Blackrock’s model portfolio business is lagging in terms of adoption, and why he believes this will continue. The purpose of model portfolios is to simplify the investing landscape for investors and advisors given the abundance of funds to build a portfolio. 

Now, Kaissar believes that there are too many model portfolios which is creating additional unnecessary complications for advisors. Some advisors will stick to model portfolios from a major asset manager like Blackrock or Vanguard given a strong brand name and lower costs. 

Currently, model portfolios account for about $4.2 trillion in assets, and this is expected to double over the next 5 years. While Kaissar sees this as a positive for investors due to lower costs and more transparency, he doesn’t share the industry’s optimism about the growth trajectory of model portfolios since many advisors don’t have a financial interest in recommending the product for clients. 

In fact, many advisors would be giving up revenue if they moved all their clients into model portfolios. This is also reflected in mutual funds having an average annual expense ratio of 1.3% per year,, while model portfolios’ average expense ratios tend to be between 0.15% and 0.3% per year. Given the incentives, Kaissar believes that growth in model portfolios will fall short of expectations.

Finsum: Model portfolios are a booming part of the wealth management industry. Yet for many advisors, the incentives don’t support full adoption.

Okay, now, stop drooling. Say what?

This: over the next five years, the model portfolio realm of money management’s expected to swell to a $10 trillion business by Blackrock Inc, according to finance.yahoo.com.

You say coaches are masters at plotting strategy? Well, in this care, the strategy, where asset managers and investment platforms gather packages that are ready made and sold to financial advisers, current is on course to expand from approximately $4.2 trillion according to Salim Ramji, global head of iShares and index investments at the asset manager.

“It’s going to be massive,” he said on Bloomberg Television’s ETF IQ. “It’s the way in which more and more fiduciary advisers are doing business, and, as a result, that’s the way in which we’re doing business with them.”

Also significant, when it comes to money management, plucking money into the model portfolio commands a special corner, according to advisorhub.com.

Blackrock, a plethora of competitors like Vanguard and Charles Schwab are reaping the benefits stemming from the popularity of bundling funds into ready made strategies.