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Fidelity Launches Model Portfolios for Advisors

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Fidelity Investments has joined the growing group of asset managers offering model portfolios for advisor clients.

Fidelity Model Portfolios debuted Thursday with an initial offering of five different asset mixes called Target Allocation Model Portfolios. The portfolios consist entirely of Fidelity mutual funds with stock/bond allocations based on different risk profiles, ranging from a conservative 20% stocks/80% bonds portfolio to an aggressive 85% stocks/15% bonds mix. In between are stock/bond ratios of 40/60, 60/40 and 70/30.

There are 7 to 12 funds in each portfolio chosen from a group of 39 Fidelity funds, both active (Fidelity Advisor funds) and passive (Index Funds). Target allocations will rebalance quarterly and the average expense ratios range from 36 to 40 basis points. There are no additional advisory fees.

Fidelity is marketing Model Portfolios as a means for advisors to deliver the services their clients want, which stretch well beyond investment management and asset allocation, while operating in an environment where fee compression is rampant.

“With this new offering, advisors can feel confident that they’re delivering institutional-quality portfolios, and they can spend more time focusing on services that can help them deliver even higher value, including helping their clients achieve their life goals,” said Matt Goulet, senior vice president, Fidelity Institutional Asset Management, in a statement. “Advisors are increasingly demanding choice,” Goulet told ThinkAdvisor.

All financial advisors can access Fidelity Model Portfolios, not just advisors who use Fidelity’s platform.

With its latest offering, Fidelity joins Vanguard, BlackRock, TD Ameritrade and other asset managers and custodians already providing model portfolios.

Model portfolios benefit both advisors and asset managers, says Tim Welsh, president of Nexus Strategy, a consulting firm to the wealth management industry. “Advisors can easily access the models from the big asset managers to build and manage portfolios for ‘free,’ while the asset managers get distribution electronically and don’t need to rely on costly wholesalers.”

In its announcement, Fidelity cited research from Cerulli Associates, noting that 81% of advisors use some type of model when constructing clients’ portfolios. Cerulli estimates that $6 trillion is invested in managed accounts and the number is expected to grow over 14% annually over the next few years.

As of May 31, Fidelity had $2.5 trillion in assets under management and another $4.5 trillion under administration. The privately owned asset manager serves more than 12,500 advisory firms with investment and technology solutions, 27 million individuals and 23,000 businesses managing employee benefit programs.

— Check out Why Vanguard’s Not the Only Threat to Active Managers on ThinkAdvisor.