Two things can be true of model portfolios. Adoption is growing and not all advisors are warm to outsourcing the investment process to third parties.
Broadly speaking, the camp of advisors that aren’t overly enthusiastic about model portfolios is largely populated by two cohorts. Those whose time in the wealth management industry can be measured in decades and those who are simply “geeks” for securities analysis and research.
Still, there’s no denying that model portfolio adoption is surging and it’s easy to understand why. Demand for high-quality, professional financial advice is doing the same, but the population of advisors is growing only in negligible fashion. Said another way, in what sounds like a good problem to have, advisors may have too many clients or – the bad part – they’re facing time constraints in adequately servicing existing clients.
Model portfolios can ameliorate the latter scenario and it appears some advisors are already hip to that fact. Those that aren’t ought to get there.
Young Advisors Should Embrace Model Portfolios
WisdomTree Director of Client Solutions Ryan Krystopowicz points out that millennial advisors are the ideal constituency for model portfolios.
“If you're a millennial advisor (or simply building a modern practice), this is the opportunity, and the challenge,” he notes. “The firms that win won't just be ‘better investors.’ They'll be better operators. That's why I've come to believe model portfolios are becoming the operating system for serving the next generation at scale. Over my 14 years in this industry, I've watched the conversation shift from ‘Should we use models?’ to ‘How do we build our firm's client experience around them?’”
The union of millennial advisors and model portfolios is logical one for various reasons, not the least of which is the fact that exchange traded funds (ETFs) – a favored tool of younger advisors and investors – are increasingly the bedrocks of model portfolios.
“ETFs account for 54% of model assets, up from 51% a year earlier,” adds Krystopowicz. “In other words, the market is increasingly voting for a combination that makes a lot of sense for modern practices: ETF implementation delivered through scalable model architecture.”
Millennial advisors likely entered the industry with some working-level, if not high knowledge of ETFs so why not transition those competencies over to client service? It just makes good business sense.
Millennial Advisors Fit ‘The Mold’
Model portfolios aren’t reserved for one specific set of advisors. Young or old, these instruments are worth considering because data confirm clients like them and the created time efficiencies open the door to improved business and relationship building.
Those advantages should be coveted by all advisors, regardless of demographic background, but it is clear millennial advisors are a prime model portfolio audience.
“Millennial advisors tend to be builders. Many are working in leaner environments, wearing multiple hats, and trying to grow without sacrificing client experience,” concludes Krystopowicz. “Models help because they remove a chunk of the work that's hardest to scale: day-to-day portfolio construction, trading, and rebalancing across dozens, if not hundreds, of households.”
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