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March 12, 2020 at 05:11 PM
Fintech firm Envestnet continues to see growth in its model portfolio business and expects that to continue despite the volatility in the markets related to the novel coronavirus, according to Tim Clift, chief investment strategist at Envestnet PMC.
“That’s one of the fastest growing areas on our platform and it has the most interest from financial advisors,” he told ThinkAdvisor on Wednesday. Its third-party model portfolios from firms including American Funds, BlackRock and Vanguard included assets of about $74 billion as of Sept. 30, he said, noting that represented “30% year-over-year growth” and it has been growing each year.
Those models include mutual funds and exchange-traded funds “across the risk spectrum” from about 150 firms, with the total number of underlying models offered coming in at about 1,500, he said.
The number of firms offering model portfolios on Envestnet’s advisory platform is up from probably about 135-140 a year ago, he noted. Although Envestnet has added some new companies, most of the major asset management firms already have products on the platform, he pointed out. Those firms are, however, continuing to add more suites of products, he said.
More than 100,000 financial advisors use Envestnet’s platform overall and the number of them using model portfolios is “more than half for sure,” he said. That growth “trend is on the upswing and the younger advisors are definitely using models more and more often,” he added.
“More and more advisors’ practices are moving over to models” because they like the fact that they save advisors time and tend to increase the value of their practices, he said. In addition, if a firm is not using models and the technology that they enable, “it’s really hard to grow their business,” he said.
When they want to sell or otherwise “monetize their practice at some point,” advisors are realizing that “it’ll have a much higher multiple on their practice if they’re using models — if they are not the brains behind” all the investments being made at the firm, he told ThinkAdvisor. After all, if they are indeed the entire brains behind their firms’ strategies and they leave, “then the value-add to their clients has disappeared,” he explained.
Another reason their practices are “worth a lot more” with models being used is that asset allocation and fund selection have “become a commodity, and you’ve got to outsource that because you’re not really getting paid back for that” now, he said.
