Displaying items by tag: model portfolios

It’s a simple truth: the more you do something, the better you’ll become at that task. For financial advisors, communicating with clients consistently and confidently is one of those skills that is essential to a healthy practice.

Let’s apply this concept to explaining to a client their investment portfolio: how it was constructed, how it’s maintained, and why it has the components it does. Imagine two scenarios: one where you’ve built customized portfolios for each of your clients and another where you’ve implemented a set of model portfolios across your book of business. In which scenario would you feel more confident explaining each approach to each client?

The point is this: model portfolios offer more than just operational efficiency. They provide advisors with the benefit of consistent communication. By implementing a defined set of investment strategies across your client base, you can polish your investment story into a clear and consistent narrative.

This consistency translates to proficiency and, ultimately, confidence. You become adept at articulating its nuances and rationale by repeatedly explaining a unified investment approach. And the more practiced you become at telling your story, the more confidence you convey to your clients.

Finsum: Find out how model portfolios can help you tell your clients a consistent and compelling investment story, building trust and confidence.

State Street Global Advisors is looking to grow its model portfolio business from $5 billion currently to over $25 billion by the end of this decade. Model portfolios are experiencing increasing popularity among financial advisors and clients. They enable advisors to bundle funds into specialized, off-the-shelf strategies, creating more time and resources for client engagement and financial planning.

At the moment, Blackrock is the clear leader with nearly $100 billion in assets tied to its model portfolios. Recently, the asset manager predicted that over the next 5 years, model portfolios’ total assets will exceed $10 trillion over the next 5 years from $4 trillion as of July 2023. State Street is aiming to capture a piece of this expanding market. 

Peter Hill, State Street’s head of model portfolios solutions, remarked, “We are fully committed to investing in our model portfolio business to meet the needs of our advisors and our platforms as their adoption rate of models continues to grow.” To achieve this, State Street is investing in the segment from an ‘infrastructure perspective’. This includes hiring employees in sales and marketing while also increasing outreach to advisors.  

Finsum: State Street is looking to grow its model portfolio segment by 5-folds over the next 5 years. Over the next 5 years, model portfolio assets are forecast to exceed $10 trillion from $4 trillion currently.

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.