Model portfolios are increasingly popular among financial advisors, according to research from Cerulli Associates. Advisors are turning to model portfolios for many reasons, including the fact that they may allow advisors to take on more clients while spending less time on investment management. Here’s what advisors should know.
More Advisors Are Using Model Portfolios
More advisors are using model portfolios to help serve clients and grow their businesses, according to Cerulli’s most recent “Cerulli Edge – U.S. Advisor Edition” report.
When it comes to model portfolio use, 13% of advisors primarily outsource client portfolios to a model suggested by broker-dealers, advisory turnkey asset management programs (TAMPs), asset managers or third-party strategists without making modifications.
Additionally, 26% of advisors rely on similar third-party resources but make modifications to the portfolio to fit clients’ needs or preferences, according to Cerulli.
What Advisors Should Know
Advisors who use model portfolios appropriately may reap benefits that include time efficiency, increased service offerings and more attention toward client-facing activities.
Time-saving characteristics. Advisors using model portfolios were able to lower their time commitment to investment management to less than 10%, the study says. That’s a substantial decrease from 18.5% of time spent on practice-level models and 29.5% on fully customized models.
Increased service offerings. “The effective use of model portfolios can increase advisor efficiencies and service offerings in both maturing and fully mature practices, in a variety of ways depending upon the preference of the practice,” said Brad Bruenell, associate analyst at Cerulli, in a statement.
This saved time can be reallocated into tasks to assist both early career advisors looking to build their book of clients and experienced advisors with their eye on nurturing client heirs.
Attention to client-facing activities. This newfound time saved may also enable advisors to devote themselves to more high-value tasks such as “delivery of financial planning services and asset gathering.”
Advisors should still remain aware of the pros and cons of using model portfolios, especially as a blanket solution for the entirety of their clientele. They may not work for every practice and for every client. High-net-worth clients, for instance, may require the manual personalization that custom portfolios offer to maximize returns on private equity and hedge fund investments.
Bottom Line
Advisors are increasingly adopting model portfolios in their practices. For some advisors, the integration of model portfolios, even partially, can be an asset to fueling their business growth and scaling services.
Tips for Growing Your Financial Advisory Business
- Let us be your organic growth partner. If you are looking to grow your financial advisory business, check out SmartAsset’s SmartAdvisor platform. We match certified financial advisors with right-fit clients across the U.S.
- Expand your radius. SmartAsset’s recent survey shows that many advisors expect to continue meeting with clients remotely following COVID-19. Consider broadening your search and working with investors who are more comfortable with holding virtual meetings or spacing out in-person meetings.
Photo credit: ©iStock.com/Cecilie_Arcurs, ©iStock.com/VioletaStoimenova