Financial advisors are relying heavily on model portfolios as their businesses become more complex, a survey released by Broadridge Financial Solutions found.
Eighty-five percent of financial advisors currently use model portfolios, and 70% combine models with custom portfolio design, according to the survey. Respondents reported that 54% of advised assets were in model portfolios, and said they expected that figure to rise to 58% over the next two years.
Both users and non-users of model portfolios said business scalability was the primary driver of the adoption or consideration. Other reasons advisors said they used models:
- Leveraging investment management experts — 50%
- Focusing efforts on client building and retention — 47%
- Better addressing compliance and regulation — 36%
Seventy-eight percent of advisors in the survey thought that their clients cared more about planning, service and support than about outperforming the market, and 83% agreed that model portfolios were essential to giving themselves more time for financial planning.
“By shifting assets to model portfolios, financial advisors are acknowledging that they aren’t just being asked to provide investment management expertise — they need to prioritize holistic financial planning and client service,” Matthew Schiffman, principal at Broadridge Financial Solutions, said in a statement.
“A focus solely on investment management limits the growth of an advisor’s book of business. As advisors find the right balance between custom and model portfolios for their practice, we foresee more assets flowing into models, particularly if usage expands among higher AUM accounts.”
Seventy-three percent of advisors said model portfolios were more appropriate for smaller portfolios, those of less than $500,000. Meanwhile, 46% preferred models for portfolios between $500,000 and $999,00 and 31% for portfolios of more $1 million.
Broadridge fielded the quantitative and qualitative survey of 500 financial advisors between March 21 and April 5.
Concerns about model portfolio usage remain, according to the survey. Among the 15% of respondents that said they did not use model portfolios to any degree, 69% insisted that they would definitely or probably not start to do so in the next two years.
Fifth-nine percent of non-users viewed money management as part of their value-add for clients, and 51% believed that their clients were paying expressly for customized solutions.
Other concerns resonated more broadly among advisors in the survey. Fifty-one percent said use of model portfolios made it harder to differentiate themselves from robo-advisors.