How model portfolios can save advisors time

Cerulli anticipates financial planning to be significant driver for the adoption of model portfolios

How model portfolios can save advisors time

A new study by Cerulli Associates suggests that using model portfolios can reduce the amount of time adviser practices spend managing their portfolios.

When used properly, they enable practitioners to redirect time toward other extremely essential tasks like providing financial planning services and asset accumulation.

The adoption of model portfolios is expected to be strongly influenced by the industry's ongoing transformation to a service model focused on financial planning, according to Cerulli.

Read more: Model portfolios in focus as firms prioritize client experience

To date, individuals who develop client-specific portfolios devote 29.5% of their time to investment management, compared to those who use proprietary models, who spend 18.5% of their time to it. Both groups could cut that time commitment to under 10% if they used the model portfolio approach.

According to Cerulli associate analyst Brad Bruenell, "This saved time can be put toward client-facing activities, a particularly significant activity."

He cites younger advisors who are concentrated on acquiring assets and developing a clientele as an example.

Model portfolios can be an economical approach for larger, more established practices to serve younger, less wealthy clients, freeing up their specialist investing personnel to concentrate on wealthier clients with more sophisticated demands.

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Additionally, younger clients are occasionally the children of those wealthier clients, meaning that advisors assist multiple generations of a family with their financial needs.

“The effective use of model portfolios can increase advisor efficiencies and service offerings in both maturing and fully mature practices, in a variety of ways depending upon the preference of the practice,” Bruenell said.

“We anticipate this trend will continue to gain traction among advisors in the future as they seek to improve their scale and service differentiation.”