The Rise of Model Portfolios—A Blessing or a Curse for Asset Managers?

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The vast majority of advisors rely on model portfolios to meet the needs of their investment clients, further distancing the underlying asset managers from the financial professionals using their products. Many firms are struggling to adapt to changing distribution models that include serving advisors directly as well as through model portfolios provided by the home office or third-party providers.

Nearly half of advisors (47%) say they use models they build themselves. That said, many of these same advisors are starting from templates developed by leading asset managers. Three in ten (29%) use models provided by the home office, while 18% use models offered by third-party providers.

Compounding the challenge for mutual fund managers, product rationalization at large broker-dealers combined with a growing preference for low-fee providers as well as an increasing appetite for low-fee, passively managed investments including ETFs is encouraging advisors to consolidate their relationships with mutual fund providers. Yet despite the many challenges facing active managers, the current environment offers fresh opportunities for those able to adapt to the changing market dynamics. Furthermore, active managers have an opportunity to promote the value of their investment philosophies amid increasing market volatility and rising trade tensions.

Advisors reveal an appetite for active non-US equities, emerging markets and active fixed income. In addition, multi-asset strategies are popular with advisors planning to increase their use of alternatives. Rather than fighting the expanding use of model portfolios, asset managers have the opportunity to position solutions in this area, either as model providers or within the lineup of best-of-breed funds in an existing model.

Above all, advisors want to do business with firms they trust. Of course, consistent investment performance and good value for the money are key drivers of consideration as well. But the brands that build, foster and strengthen trust with the financial advisors they do business with will be best positioned in the long run.


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This entry was posted in Brand and Messaging, Financial Services and tagged by Meredith Lloyd Rice. Bookmark the permalink.
Meredith Lloyd Rice

About Meredith Lloyd Rice

Meredith Lloyd Rice is a vice president in Market Strategies' Syndicated Research division. She manages the firm’s syndicated research products focused on the financial advisor market and is the lead author of the Advisor Brandscape® report. She has more than 15 years of experience managing research initiatives in the wealth management industry and has explored a wide range of business issues on the client and supplier side. Prior to joining Market Strategies, Meredith was an associate VP at Chatham Partners where she oversaw a team of researchers and managed the overall design, analysis and interpretation of large-scale studies for institutional financial services clients. Meredith earned an MBA from Thunderbird School of Global Management and a bachelor’s degree from Colgate University. She is a former collegiate rower who now gets her exercise chasing after her 2-year-old daughter and Clumber Spaniel.

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