Model portfolio assets dropped to $3 trillion in first quarter

Assets under management in model portfolios clocked in at $3 trillion during the first quarter, a 16% drop compared with the fourth-quarter of 2019 as the selloff related to COVID-19 racked the economy. 

Despite the slight contraction, advisers are increasingly turning to model portfolios to manage client assets, according to data released Wednesday by Broadridge Financial Solutions. In fact, 53% of the total assets were in adviser-led model portfolios. By comparison, home-office and third-party model portfolios were 30% and 17% of total assets, respectively. 

The research was conducted via Broadridge’s algorithm that tracks portfolio activity across $14 trillion of directly sourced assets, according to the report. Fielded between Feb. 21 through March 1, the survey was completed by 300 financial advisers across wirehouse, regional, independent broker-dealer and RIA channels. 

Exchange-traded funds, which rose to 43% of assets compared with 36% in the first quarter of 2018, have been the driving force behind model portfolio growth, according to Broadridge.

“The low-cost and tax-efficient nature of ETFs continues to be particularly appealing as asset managers build model portfolios,” Broadridge senior director Andrew Guillette said in a statement. 

ETF-only model portfolios represented one-third, or 36%, of all model portfolio types during the first quarter. Still, mutual-fund only model portfolios outpaced ETF-only, accounting for 42% of all modeled portfolios. Hybrid strategies blending mutual funds and ETFs accounted for 25% of all model portfolio strategies.  

Broadridge anticipates advisers to rebalance their asset mix in the months ahead as a result of the market environment caused by the coronavirus, Guillette said.

Additionally, the increasing demand for model portfolios among younger advisers underscores a broader industry shift to holistic financial planning, according to Broadridge. 

Current financial advisors under 40 years old have nearly 60% of their fee-based advisory assets in model portfolios. Those same respondents expect their fee-based advisory assets to be 66% in model portfolios by 2022, while 26% of respondents under 40 expect to have 100% of their fee-based advisory assets in model portfolios within two years, allowing for an “increased focus on client service,” according to the report. 

The popularity of model portfolios has been evident as large industry players ramp up model portfolio capabilities. Franklin Templeton — which boasts $617 billion in assets under management as of May 31 — announced Tuesday the availability of its suite of a dozen outcome model portfolios through the Envestnet platform

Franklin Templeton Chief Investment Officer Ed Perks leads the team that manages the 12 outcome model portfolios. “Our portfolio construction experts look through and across asset classes to assemble each model to ensure targeted diversification among asset classes, regions and sectors — using a wide range of active, passive and smart beta investments,” he said. 

Orion Advisor Solutions announced last Tuesday its partnership with State Street Global Advisors to provide Orion users six model portfolios, spanning from conservative to maximum growth, and representing a distinct mix of SPDR ETFs. Oranj, too, announced a partnership last Tuesday with Wilshire Associates, who made their mutual funds and model portfolios available on the Oranj platform.

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