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Advisors Less Comfortable With Model Portfolios Amid Pandemic: YCharts

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The coronavirus pandemic has brought third-party portfolio management into sharp focus for financial advisors, according to research released Wednesday by YCharts, an investment research, analytics and client communications platform.

The study found that surveyed advisors’ comfort levels with using third-party model portfolios has been disrupted by the market volatility caused by the virus outbreak.

Forty-one percent of advisors who transitioned to outsourced model portfolios in the last year said they were now less confident in those strategies. Moreover, 22% of all advisors who use third-party models said they planned to decrease the percentage of assets invested in those models.

In contrast, more than half of advisors who build portfolios in-house said they were no more or less confident using their own strategies after the market downturn caused by COVID-19, while 42% said they were even more confident.

YCharts conducted the survey in July among 319 financial advisors, 76% of whom identified as RIAs or dually registered RIAs, with 24% indicating employment at a broker-dealer.

Leveraging third-party model portfolios versus managing client portfolios in-house confronts advisors with both benefits and trade-offs, the survey showed.

Seventy-two percent of advisors who use third-party models said outsourced portfolio management enabled them to spend more time with clients and prospects.

But two in five advisors who manage portfolios in-house acknowledged that they had less time to interact with clients and prospects; they also noted that it was costly and time consuming to conduct their own due diligence.

Of advisors who outsource portfolio management, 71% agreed that a disadvantage of third-party models was a lack of personalized service, whereas 90% of those that build and manage their own portfolios reported that they were able to deliver more personalized service to their clients.

The research also showed that third-party model portfolios present advisors with myriad investment strategies, which tends to further complicate their decision-making process.

Fifty-two percent of advisors said the most difficult thing about evaluating third-party model portfolios was making “apples to apples” comparisons across different providers. Forty-four percent complained that marketing material was too one-sided.

“The 2020 market crash caused an unprecedented disruption in many advisor-client relationships,” Sean Brown, chief executive and president of YCharts, said in a statement.

“Whether advisors are opting to become more involved in portfolio management or are confident in their outsourcing strategies, it’s imperative that they have tools and data at their disposal to help them make smart investment decisions and are able to effectively communicate with clients regarding their investment strategies.”

— Check out How to Choose a Model Portfolio on ThinkAdvisor.