Why use model portfolios? So advisers can focus on what matters most

Executive summary:

  • Using model strategies as part of your practice is a lot like hiring a running coach to prepare for a marathon. Both allow you to focus on maximising your efficiency.
  • Model strategies can offer an adviser time, choice and confidence.
  • Outsourcing investment management through model strategies allows advisers to give their clients more personalised services

Over nearly three decades, I’ve been dedicated to the sport of running. For the last five years, I chased the elusive goal of qualifying for the Boston Marathon, my ultimate aspiration. It wasn’t until I sought the expertise of a professional coach that I finally achieved this dream. Having a customised plan tailored precisely to my needs was a game-changer!

My coach not only held me accountable but also helped me identify my weaknesses and provided invaluable perspective. This support allowed me to channel my energy into the quality of my training.

The decision to hire a coach liberated me to focus on what truly mattered: refining my skills, maximising my efficiency, and spending precious time with my family. Engaging a professional dedicated solely to enhancing my running speed proved to be the pivotal step I needed to transform my ambition into reality.

What matters most to you?

In today’s fast-paced financial landscape, financial advisers are constantly seeking ways to enhance their services, streamline their processes, and create meaningful connections with their clients. Like me with my dreams of running a marathon.

And, like me deciding to hire a coach, more and more advisers are seeking outside expertise to manage client portfolios. They are turning to professional model investment strategies, which have gained enormous momentum in the past few years.

Model strategies can help free up an adviser’s time for what truly matters: understanding their clients’ needs, goals and circumstances, helping their clients navigate changing life circumstances and ultimately helping them achieve the equivalent of running in the Boston Marathon: reaching their financial goals.

The Morningstar Direct database now includes more than 2,000 models, mostly from the separately managed account database, which currently holds more than 16,000 vehicles. It also estimates that $315 billion was invested in third-party model portfolios in 20221.

From what I have seen in my time at Russell Investments, model strategies can provide advisers with three key advantages when managing their practice:

  1. Time: By outsourcing certain aspects of portfolio management, model strategies allow advisers to reclaim precious time that can be directed toward client interactions, business growth and personal pursuits.
  2. Choice: Model portfolios offer a diverse range of options to cater to various client needs, including tax-sensitive strategies, growth and income strategies, or fee-conscious approaches, enabling advisers to select the most suitable combination for their clients.
  3. Confidence: Advisers can rely on the investment expertise and ongoing professional management that model strategies provide, which can give them the confidence they are delivering value to clients.

Time to focus on what truly matters

Time is an adviser’s scarcest resource.

How can you expand your business while cherishing more of what brings you joy, such as spending time with family and friends or pursuing your hobbies? Whether your aim is to boost the value of your practice or simply sustain its current worth, you will need to create more room in your schedule for acquiring new clients and tending to existing ones. The significance of this cannot be overstated, as the future of your practice hinges on it. Developing and nurturing client relationships is essential to building, growing, and maintaining a business. This goal is unattainable if your entire schedule is consumed by the monitoring of numerous investment products.

We believe implementing professional model strategies saves time, allowing advisers to focus on what they do best: serving their clients. By outsourcing certain aspects of portfolio management, including asset allocation, manager selection, and tax-management, advisers should be able to dedicate more time to building relationships and understanding their clients’ unique needs. This is the true value delivered by financial professionals.

Offering choice that’s scalable and client focused

Model portfolios are effective only when offering the desired level of choice for clients. This choice should also be scalable. Striking the right balance between these factors is optimal. Professional model portfolios offer the advantage of streamlining the adviser workload while still aligning with the investment outcomes that most investors require.

Advisers can select from model portfolios that prioritise growth, solutions that focus on after-tax returns, or portfolios for fee-sensitive clients. And for clients who are retiring from the workforce, there are professionally managed income models that offer a greater emphasis on yield for their retirement years.

Investment management takes time

1 Source: https://static.twentyoverten.com/5e0f642709752828dbb0c6e0/-mjyNOiwG/Outsourcing-Money-Management-article4.pdf, AssetMark, 2019. Accessed on Feb 3, 2021. Assumptions: Adviser outsources 50‑89% of AUM and works 50 weeks per year.

Confidently making the transition: Discovering the true value of Adviser-Client relationships

Worried that using model strategies will cause your clients to doubt your ability as an adviser? Let me tell you a story.

The adviser recently made the transition to a professional model provider. When she informed her clients about this change, she was on the verge of tears, overwhelmed by the emotions connected to the effort previously invested in building and maintaining her own investment models. However, the clients’ reaction was not what she anticipated: they simply agreed and moved forward. This turn of events surprised the advisor since her team had dedicated their passion and energy into creating what she believed was a substantial value-add for her clients.

The adviser learned a valuable lesson from this experience: her clients cherished the relationship and the guidance she offered more than the investments she chose. It underscored the importance of allocating more time to clients and less to managing hundreds of individual mutual funds.

The process of evaluating and managing investments and products consumes both time and resources. Most advisers don’t have the time or resources to do this properly and maintain the level of service desired by most clients.

What holds true significance for you?

Regardless of the answer, adopting professional model investment strategies can help free up time, allowing for engagement in more enjoyable and rewarding activities.

Just as a marathon coach facilitates training, selecting the right asset management firm helps with the ongoing and proactive management of these models. This approach allows advisers to focus on and seize potential growth opportunities while effectively managing the investment risks delivered by today’s capital markets. Remember, it’s not solely about the investment models themselves; it’s the client relationships established and the comprehensive financial guidance offered to clients that truly make the difference.

1 Source: WealthAdviser, 2024 Model Portfolio and SMA Strategists guidebook