Morningstar has just launched its Model Marketplace where advisors can research third-party investment models, customize strategies to comport with their clients’ needs and preferences and execute trades at no additional cost.
Thirteen firms are currently participating in the Model Marketplace, including three of the four largest asset managers: BlackRock, Vanguard and Fidelity. (State Street was not listed in the Model Marketplace roster.) Many of the firms, including Morningstar, have their own model portfolios but now they will all be included on a single platform. Morningstar will not include its own model portfolios, known as Managed Portfolios, on the platform; nor will it accept incentives from platform participants.
The platform will be integrated into the Morningstar Office Cloud, which is a portfolio and practice management software package for independent RIAs that combines portfolio accounting and reporting with Morningstar’s data, analytics and research.
Model portfolios have been growing in popularity as increasing numbers of financial advisors choose to outsource investment management though most of them retain discretion over the assets. According to a 2018 survey by Cerulli, 26% of advisors, representing $5.3 trillion in assets, use models in combination with their own research to customize portfolios, but only 12% cede discretion to a third party. Cerulli estimated that more than 150,000 advisors, representing $5.8 trillion, would be better served if they increased their reliance on model allocations rather than maintain those responsibilities in-house.