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How Model Portfolios Can Free Up Advisors' Time

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The use of model portfolios can free up time advisor practices spend on portfolio management, according to a new report from Cerulli Associates. Used appropriately, they allow practices to reallocate time toward other highly valuable functions, such as delivery of financial planning services and asset gathering.

Cerulli expects the industry’s gradual and steady transition to a financial planning-oriented service model to be a powerful impetus for the adoption of model portfolios.

For example, advisor groups that create individually tailored portfolios or practice-level custom models — insourcers, according to Cerulli — could significantly reduce their time commitment by switching to model portfolios. Currently, those who create portfolios customized for each client spend 29.5% of their time on investment management, and those who utilize custom models 18.5% of their time. Model portfolio use would allow both groups to reduce that time commitment to less than 10%. 

“This saved time can be put toward client-facing activities, a particularly important activity,” Cerulli associate analyst Brad Bruenell said in a statement. “For example, for younger advisors that are focused on asset gathering and building a book of business.”

For larger, more seasoned practices, model portfolios can be an effective way to efficiently service younger, less affluent clients, allowing their specialized investment staff to focus on wealthier clients with more complex needs. Moreover, younger clients are sometimes the children of those wealthier clients, which means that advisors serve the financial needs of multiple generations of a family.

“The effective use of model portfolios can increase advisor efficiencies and service offerings in both maturing and fully mature practices, in a variety of ways depending upon the preference of the practice,” Bruenell said.

“We anticipate this trend will continue to gain traction among advisors in the future as they seek to improve their scale and service differentiation.”


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