Model Portfolios Aren't Winning Over New Advisors: Survey
Their recent growth is mainly heavier use by existing customers, according to new data from Escalent.
New advisors aren’t embracing third-party model portfolios as had been previously expected. Instead, use of third-party model portfolios is increasing among a select group of current, heavy users who see value in spending more time building relationships with their clients than on individual investment selection, according to a recent survey by Escalent.
The survey findings note that approximately one in five advisors expects to rely more on model portfolios and spend less time on portfolio construction over the next year. Many are turning to model portfolios to scale their business, ensure more consistency, and meet the needs of multiple types of clients simultaneously. The findings are as follows:
- Few new advisors adopted third-party model portfolios over the past year, as the proportion of advisors using model portfolios from asset managers (54%) and other third-party providers (35%) is relatively unchanged.
- 52% of advisors remain most reliant on model portfolios they create or modify themselves.
- 27% of advisors using model portfolios reported increasing their use since the pandemic took hold — a significant increase from 14% last year. Heavy users of model portfolios from third-party providers are the most likely to have increased their use.
The fact that a majority of advisors report using custom models that they have created or modified themselves highlights the importance of offering portfolio construction tools and resources. Whether advisors take a fully outsourced approach or hybrid approach in their use of model portfolios, the report states that this trend has the potential to dramatically alter the relationship between advisors and asset managers in the near future.
The findings are based on a survey of 400 registered financial advisors with an active book of business of at least $5 million.