Financial advisors increasingly relying on model portfolios
Business scalability is the big driver, overcoming a more human fear -- looking lazy.
In the quest to keep up with the complexities of business these days, financial advisors are increasingly turning to model portfolios, and more assets are expected to flow to models over the next two years.
That’s according to new data from Broadridge Financial Solutions, Inc. Advisors’ drive to stay abreast of competition, coupled with new developments in technology that provide greater assistance in designing and managing models, leads many to model portfolios. Currently, 85 percent use model portfolios; 70 percent combine models with custom portfolio design.
And assets are wending their way into these model portfolios, with more than half—54 percent—already there; respondents expect that to grow to 58 percent over the next two years.
Why the shift?
According to 65 percent of financial advisors who use them and 35 percent of those who don’t, business scalability is the big driver.
In addition, 50 percent say leveraging investment management experts is the reason; 47 percent say it’s to focus their efforts on client building and retention; and 36 percent point to efforts to deal with compliance and regulation.
In addition, 78 percent of advisors say their clients are less interested in outperforming the market than they are in planning, service and support, and 83 percent say that model portfolios are essential in giving them the time to devote to those efforts.
Advisors do predominantly still think such things are more suited to smaller portfolios—73 percent prefer them for portfolios under $500,000, while 46 percent prefer them for the under-$1 million portfolios and just 31 percent for portfolios over $1 million.
And there’s also concern about being regarded as “lazy” for using them, especially among the 15 percent of respondents who don’t use them.
Among that group, the report says, 69 percent say they definitely or probably won’t start to use models in the next two years; 59 percent see managing money as part of their value-add for clients; and 51 percent believe their clients are expressly paying for customized solutions.
Respondents offer various reasons why they’re leery of models, with 51 percent believing that model portfolio usage makes it harder to differentiate versus robo-advisors; 46 percent believing that model portfolios are not as effective in down or highly volatile markets; 45 percent saying that model portfolios make it harder to assess risk; and 35 percent fearing clients will think they’re lazy if they use models.
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