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        The Rise of Model Portfolios: Global Trends and Developments

        • Model portfolio assets in the United States are on a remarkable trajectory, expected to soar to an astounding US$3 trillion by 2026.1
        • Closer to home, model portfolios implemented with managed accounts have made a significant leap from niche to mainstream. Nearly two-thirds of advisers are now recommending these portfolios to their clients, reflecting a major shift in the financial advisory landscape.2
        • By examining US trends, we can gain insights to shape the future of the Australian model portfolio market, helping us anticipate changes and better prepare for the evolving financial landscape.
        Sinead Schaffer
        ETF Model Portfolio Strategist

        Over the past five years, clients have not only been receiving more from their financial advisers but also expecting more. This shift in expectations has driven the need for more efficient and effective investment strategies. Model portfolios have proven to be a valuable tool in this regard, freeing up time for advisors to engage in client-enhancing activities. As a result, more investors, both locally and abroad, are becoming aware of the benefits of having their assets in model portfolios.

        In Australia, investors who are aware that their assets are in model portfolios report significantly higher satisfaction with their financial advisers. They appreciate the transparency about investment strategies, the effective resolution of issues, and the optimisation of their investment portfolio performance. This awareness and satisfaction has contributed to tremendous growth in the local market, with $14 billion in inflows during the last six months of 2024.3

        Given the focus on model portfolios, below is a summary of the key differences between the Australian and United States (US) markets:

        1

        Custom Models: In the US, advisers and licensees are increasingly partnering with investment managers to create custom models for their practices. This segment is experiencing significant growth as asset managers begin to dominate the offering, often providing solutions in a more cost-efficient manner. On the other hand, in Australia, consultants attract most of the custom model business. Licensees prefer working with independent consultants rather than large institutional asset managers.

        2

        Underlying Products: When it comes to underlying products, ETFs are the preferred investment vehicle in the US, driven by their increased usage in model portfolios. In Australia, the primary underlying products in managed accounts include ETFs (53%), unlisted managed funds (47%), and domestic shares (42%).2

        3

        Investment Themes: In the US, two-thirds of models are based on risk profiles, with independent advisers more likely to recommend them. Consequently, 78% of strategies employ a strategic asset allocation approach. Outcome models are used to a lesser extent, with 20% of models classified this way.1 In Australia, 68% of managed accounts employ a multi-asset investment strategy. Managed account advisers have been bullish over the last 12 months, with two-thirds adopting growth-oriented investment strategies for their clients. Additionally, 45% utilised risk-based strategies, particularly for clients with assets between $500k and $1.5 million.2

        4

        Factors Considered When Selecting Managed Accounts: In the US, performance, investment philosophy, and price are the most differentiating factors for model offerings. In Australia, 50% of current managed account users noted that performance is the most important factor when choosing to recommend a managed account. Additionally, 47% highlighted the availability on their main investment platform, and 33% considered fees as the most important factor.2

        The landscape of model portfolios is evolving rapidly both in the US and Australia. The significant growth in model portfolio assets, the mainstream adoption of managed accounts, and the increasing satisfaction among investors highlight the importance of staying informed and adaptable in this dynamic environment. By understanding the trends and developments in the US market, we can gain valuable insights that may shape the future of the Australian model portfolio market.

        As the investment landscape evolves, it's essential to explore optimal strategies. For those looking to leverage ETFs within model portfolios, visit the State Street ETF Model Portfolio webpage. Discover how State Streets ETF Model Portfolios can enhance your investment approach with transparency, performance, and cost-efficiency.

        More on Model Portfolios

        - For financial advisers / wholesale clients only – Not for distribution to retail clients -

        The recipient warrants by receipt of this material that they are a wholesale client, as defined under the Australian Corporations Act 2001 (Cth). State Street Global Advisors, Australia Limited (AFSL Number 238 276, ABN 42 003 914 225) (“SSGA, AL”) is the investment manager for the State Street ETF Model Portfolios and State Street Global Advisors, Australia Services Limited (AFSL number 274900 ABN 16 108 671 441) is the Responsible Entity and issuer of units in the State Street SPDR ETFs which are Australian registered managed investment schemes quoted on the AQUA market of the ASX or listed on the ASX. State Street ETF Model Portfolios may include State Street SPDR ETFs and other third party ETFs. This material is general information only and does not take into account your or your client’s individual objectives, financial situation or needs and you should consider whether it is appropriate for you or your client. You should ensure that your clients consider the product disclosure statement of the underlying ETFs before deciding whether to acquire or continue to hold units in an ETF. Underlying ETF PDSs and TMDs are available at ssga.com or the third party ETFs website.

        General Risks ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETF’s net asset value. ETFs typically invest by sampling an index, holding a range of securities that, in the aggregate, approximates the full index in terms of key risk factors and other characteristics. This may cause the fund to experience tracking errors relative to performance of the index. Investing involves risk including the risk of loss of principal. Diversification does not ensure a profit or guarantee against loss. Asset Allocation is a method of diversification which positions assets among major investment categories. Asset Allocation may be used in an effort to manage risk and enhance returns. It does not, however, guarantee a profit or protect against loss. An investment in the model portfolio carries a number of standard investment risks; these risks are outlined in each Provider’s PDS which should be read in full and understood by the potential investors.

        Implementation Risk State Street does not manage the accounts of retail investors pursuant to the model portfolio strategies and the strategies are only available to retail investors through various Providers that offer account management and other services to retail investors. The actual results of accounts managed by a Provider that receives access to the strategies may differ substantially from the hypothetical results of the State Street ETF Model Portfolios for a variety of reasons, including but not limited to:

        i. the fees assessed by the Provider and other third parties;

        ii. the Provider’s decision to exercise its discretion to implement a given strategy in a way that differs from the information provided by State Street;

        iii. the timing of the Provider’s implementation of strategy updates; and

        iv. investor imposed investment restrictions; and the timing and nature of investor initiated cash flow activity in the account.

        “SPDR” is a trademark of Standard & Poor’s Financial Services LLC (“S&P”) and has been licensed for use by State Street Corporation. No financial product offered by State Street Corporation or its affiliates is sponsored, endorsed, sold or promoted by S&P or its affiliates, and S&P and its affiliates make no representation, warranty or condition regarding the advisability of buying, selling or holding units/shares in such products. The trademarks and service marks referenced herein are the property of their respective owners. Third party data providers make no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the data and have no liability for damages of any kind relating to the use of such data. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA, AL’s express written consent.

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