Centralized portfolio management options are integral to scaling advisory practices. By taking advantage of model portfolios — asset allocation strategies aimed at providing a full or complementary portfolio solution comprised of several investment strategy components, including ETFs and/or mutual funds —advisors are able to spend more time on client-facing activities, which is highly correlated to increased client satisfaction and wallet-share growth.1
Although many advisors still believe that portfolio management is at the heart of their value proposition, individual investors are increasingly realizing the value of specialized expertise. Offering comprehensive advice requires that advisors maintain a level of knowledge across multiple topics, thereby limiting the time they can devote to portfolio activities.
Advisors currently spend 23% of their time on portfolio management, while only spending 15% on client-facing activities and 11% on prospecting for new clients.2 This presents advisors with a disconnect to their business goals since client-facing activities and prospecting for new clients are regarded as some of the most important aspects of growing an advisory practice.3 Yet that time is limited if it is spent on portfolio management.
As advisors seek to address the challenges of aligning business goals with optimal time management, outsourcing portfolio management may be a solution. For many advisory teams, the introduction and wide-scale availability of outsourcing options have been instrumental in increasing their capacity to spend more quality time with clients, create investment process efficiencies, and grow the menu of services offered — ultimately achieving scale.
The model portfolio value chain
While outsourcing requires a certain amount of delegation, it doesn’t equate to a loss of control. Advisory practices maintain their rigorous process for selecting portfolios that reflect client goals and risk tolerances, using transparency into the strategy’s investment objectives and portfolio construction as part of their decision-making process. What’s more, customized solutions and third-party model portfolios are not mutually exclusive. Today’s model marketplaces are among the most flexible approaches for outsourcing implementation; advisors can take advantage of pre-existing models from providers yet maintain discretion for tailoring these models according to firm philosophy or specific client needs.
The abundance of model portfolio options gives advisors greater choice, but it also makes the selection process more challenging. To be effective, model portfolio due diligence must go beyond an evaluation of basic metrics, such as investment process, performance and price, and include a comprehensive review of provider infrastructure, expertise, and transparency.