Financial Advisors

Increasing Advisor Value Using Model Portfolios

Abstract tech pattern

There are many evolving and compelling forces at work on the traditional advisor business model and value proposition, but none as transformative as the wave of financial technology in the form of the growing number of FinTech companies. While some early FinTech entrants burst onto advisor awareness as strong potential challengers, such as roboadvisors and app-based investing platforms, we are seeing growing evidence of how FinTech is developing into a strategic tool for savvy advisors. Rather than advisors being displaced or fears of a diminishing value proposition because of technology, FinTech companies are helping financial professionals come full circle to become a  tech-enabled advisor that can wield hyper-competitive positioning and stronger value propositions.

A good place to see these transformative effects in play is in the area of money management services. Financial advisors’ traditional value proposition was established upon access to the markets and portfolio management. Selectively purchasing stocks and bonds for their clients evolved over the years. Today, many advisors rely on investment managers to provide competitive mutual funds and ETFs to add to client portfolios, while others have taken the next big step of fully outsourcing to bundled TAMPS or other external strategists and model portfolios.

Driving this outsourcing trend has been the growing awareness of how early FinTech challengers demystified and essentially commoditized money management through offering quick, easy, cheap money management alternatives 24/7 on smart phones. Advisors are also realizing how investment management outsourcing could open up more time to build client relationships and offer new engaging holistic services. The key resistance holding many advisors back from fully outsourcing is the fear that they would be sharply detracting from their clients’ perception of their value proposition as investment managers.

The ongoing enhancements from one leading FinTech solution - investment research platform YCharts and their Model Portfolios tool - are very clear examples of how FinTech companies are helping advisors restructure and redefine their value proposition around investment management. With today’s investors seeking transparency around performance, fees, risks, and allocations, advisors are increasingly working with FinTech companies, like YCharts, that are building tools in collaboration with advisors - not only to beef up their investment evaluation strategy, but also to visually depict portfolio construction and performance in a simple, clean format. Advisors can offer more and higher quality touch points to demonstrate value and share insights with clients and prospects on their portfolios or any external model portfolios.

These FinTech tools are helping create a growing trend of advisors that have been termed as “modifiers.” Modifiers are advisors that start with an external model portfolio—such as from any number of outsourced options —and make alterations to that portfolio for each individual client. Modifiers may not get the potential benefits of 100% outsourcing, but this method can offer a comfortable middle ground for advisors who want to outsource but also want input into the investment decisions. This positioning still saves a huge amount of time, money and effort from full internal portfolio management and keeps advisors on the top of the investment management value chain.

Cerulli’s U.S. Asset Allocation Model Portfolios 2019 study reports that the model portfolio landscape is currently segmented as 12% of advisors using exclusively outsourced model portfolios, 22% being modifiers and 66% as strictly in-house. Cerulli believes that 45% of advisors (approximately 150,000) are outsourcing targets, or advisors who should be implementing models in their practices. FinTech companies can be instrumental in driving more advisors to the middle ground of the “modifier” ranks.

The recent YCharts enhancements confirm that it’s not just the technology – it’s how you apply the technology that makes all the difference. With the increasing number of FinTech –Advisor collaborations and joint development efforts, it only augurs well for a continuing and strengthening position for the tech-enabled advisor and their increasingly competitive value propositions.

The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors - Pershing, Voya Financial, Ultimus Fund Solutions, Fidelity, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines). For more information click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Bill Hortz

Bill Hortz is an independent business consultant and Founder/Dean of the Institute for Innovation Development- a financial services business innovation platform and network. With over 30 years of experience in the financial services industry including expertise in sales/marketing/branding of asset management firms, as well as, creatively restructuring and developing internal/external sales and strategic account departments for 5 major financial firms, including OppenheimerFunds, Neuberger&Berman and Templeton Funds Distributors. His wide ranging experiences have led Bill to a strong belief, passion and advocation for strategic thinking, innovation creation and strategic account management as the nexus of business skills needed to address a business environment challenged by an accelerating rate of change.

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