Many advisors and wealth managers are switching to model portfolios and taking a more hands-off approach when it comes to constructing and managing clients’ portfolios. The upside of this is clear as it gives advisors more time to spend on client relationships and building their business. According to surveys, about 35% of an advisors’ time is spent on managing and researching investments.
Yet, it doesn’t make sense as an advisors’ ultimate success depends on retaining and recruiting clients and helping them reach their financial goals rather than the incremental gains that can be theoretically achieved by spending more time researching investment ideas.
According to Cerulli Associates and covered by Kenneth Corbin in Barron’s, many large brokerage firms are also embracing model portfolios and encouraging brokers to spend more time with clients. Cerulli’s research shows that in down years for the market, 60% of advisor portfolios underperform the market, undercutting the rationale for more active management.
68% of brokerage firms are now moving away from advisor-constructed portfolios. In the future, they see advisors serving more as ‘holistic financial planners’ rather than stock-pickers or portfolio managers. Over long periods of time, model portfolios outperform most advisor-generated portfolios with much less risk or concerns about compliance or conflicts of interest.
Finsum: Large brokerage firms are encouraging advisors to embrace model portfolios especially given lackluster returns of many advisor-built portfolios and the extra time and energy it gives for client service.
- clients
- advisors
- model portfolios
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