Despite industry expectations that third-party model portfolios will dominate strategies and play a significant role in decision making for advisors in the near future, few new advisors have actually adopted such tools over the past year. Instead, use of third-party model portfolios is increasing among a select group of heavy users who see value in spending more time building relationships with their clients than on individual investment selection. Those are the findings of the Advisor Use of Model Portfolios and SMAs, a new Cogent Syndicated report from Escalent, a top human behavior and analytics advisory firm.
The study’s findings, based on a survey of registered financial advisors who have an active book of business of at least $5 million in assets under management (AUM) across five channels, send clear messages about their use of and preferences for third-party model portfolios:
“While overall use of third-party model portfolios is on the rise, that growth is coming entirely from advisors already using them,” said Meredith Lloyd Rice, report author and vice president at Escalent. “At the same time, providers have not been able to drive adoption with new advisors. Without consistent and meaningful conquest of new advisors, use will eventually reach an upper limit.”
Advisors who increased their use of third-party model portfolios articulated a shifting vision for their role, highlighting a desire to focus more time on client management. As clients look for more personalized and hands-on approaches from their advisors, third-party model portfolios become more and more attractive. Once advisors see consistency in results and put their trust in those models, they’re able to spend less time managing individual investment selections and more time working with clients directly.
Yet not all advisors are convinced. Some advisors feel that model portfolios do not perform as well as a more active approach in a volatile market environment or are not customized enough to meet the specific needs of high-net-worth clients.
“To attract new advisors to their model portfolios, providers must address common misperceptions hindering adoption along with extolling the benefits according to their most engaged users,” added Lloyd Rice. “In addition to testimonials, providers should be offering education opportunities and highlighting critical results that will move the needle with advisors seeking to get out of the weeds of investment selection and back into the business of building long-term relationships with their clients.”
To learn more about the report, visit our website.
Cogent Syndicated conducted an online survey with 336 registered financial advisors from October to November of 2021. In order to qualify, respondents were required to have an active book of business of at least $5 million and offer investment advice or planning services to individual investors on a fee or transactional basis. Cogent sets quota targets and weights the data to be representative of the overall advisor universe using the Discovery Data Financial Services Industry database as a sample source. Escalent will supply the exact wording of any survey question upon request.