Highly Effective Advisors Embrace Model Portfolios

Whether its integration of more technology or other avenues for added efficiencies, smart advisors are always searching for ways to become more effective advisors. After all, entering the latter territory is often accompanied by increased practice revenue and profitability.

However, some advisors are resistant to some areas of increased efficiencies. Namely, they don’t want to outsource the investment management side of the practice, which includes embracing model portfolios.

Obviously, outsourcing takes on multiple forms, but when it comes to portfolio management and using model portfolios, data confirm clients are largely open to the use of model portfolios with many believing model portfolios boost performance. Conversely, only a small percentage of clients say they would leave their advisors upon learning of the use of model portfolios.

Those are potentially encouraging figures to wary advisors because they confirm clients are unlikely to depart simply due to the use of model portfolios.

Data Confirm Model Portfolio Movement Is Underway

The movement to model portfolios is underway, indicating that reluctant advisors may want to consider the data. At the end of the first quarter, advisors were directing approximately $350 billion in client assets to model portfolios – an impressive 22% increase over the trailing nine-month period.

Many advisors are already deploying model portfolios, whether it be of the mutual fund or exchange traded fund variety, in their practices. Model portfolios are a boon for advisors looking to streamline operations and spend more time building practices while focusing on other offerings, such as estate and tax planning and more.

Something else advisors may want to consider: Outsourcing investment management frees them up to focus on other important endeavors.

“These advisors are choosing to focus their activities on their core competencies—niche branding and segmentation, financial and estate planning, family governance, business development and relationship management—and outsourcing at least some portion of the investment management function as a way of improving productivity, efficiency and (potentially) performance,” note WisdomTree’s Ryan Krystopowicz and Scot Welch.

For advisors still on the fence, the WisdomTree duo highlight some compelling data points regarding the growth trajectories of firms making the switch to model portfolios.

“Advisors using third-party model portfolios are realizing four times the asset growth and nine times the productivity growth of advisors who do not,” they said. “We are not seeking to replace a firm’s investment solution; we position ourselves as an extension of already in-house capabilities.”

What Side of the Decimal Point to Focus On

Krystopowicz and Welch point out that many advisors are focused on “the right side of the decimal point,” which includes investment management. However, the real point of emphasis should be the left side and advisors can bolster that growth by focusing on pursuits beyond managing client positions.

Those potentially lucrative endeavors include asset allocation, estate planning, tax issues and much more.

“Advisors who are most successful in growing their practices spend far more time focusing on the ‘left side’ of the decimal point—that is, on those activities that add the most value to investors’ financial lives,” conclude Krystopowicz and Welch.

Related: How Advisors Can Make Segmentation Work for Them