Financial advisors torn on third-party investment models

Uncertainty amidst COVID-19 has led to questions on outsourcing and tough trade-offs in practice management

Financial advisors torn on third-party investment models

In light of the first-quarter selloff and ongoing volatility caused by the COVID-19 pandemic, retail investors have flocked to online trading platforms in an apparent bid to be more hands-on with their portfolios. And as a new study suggests, a similar shift may be under way among financial advisors.

In a survey of more than 300 financial advisors in the U.S. – with 76% identifying as Registered Investment Advisors or dually registered RIAs, and 24% reporting that they work at a broker-dealer – investment research platform provider YCharts found that advisors who shifted to using outsourced model portfolios in the last year are less confident in those strategies today.

Among those relatively recent adopters, 41% indicated feeling much less comfort with the solutions, and 22% of all advisors who use third-party models expressed plans to scale down the assets invested in those models.

In contrast, among advisors who conduct in-house portfolio construction said that in the aftermath of the COVID-19’s worst impact on the market, over half said they’re just as confident using their own strategies, while 42% are even more confident in the wake of the COVID-19 downturn.

With their confidence in third-party model portfolios shaken, advisors will have to be more careful in weighing the benefits of using outsourced investment strategies against those of managing clients’ portfolios themselves. Survey data showed a 72% consensus among third-party model users that they are able to spend more time with clients and prospects, while 40% of those using in-house strategies acknowledged that they have less time to interact with clients and prospects.

On the flip side, 71% of advisors who outsource portfolio management agreed that it leads to a lack of personalized service, while 90% of those who build and manage portfolios themselves say they’re better able to give clients personalized service.

Shopping for a good third-party model portfolio is an additional struggle for advisors. Among all respondents, 52% agreed that making apples-to-apples comparisons is the hardest aspect of evaluating options for externally managed portfolios, while 44% cited one-sided marketing material as a substantial hurdle.

“Whether advisors are opting to become more involved in portfolio management or are confident in their outsourcing strategies, it’s imperative that they have tools and data at their disposal to help them make smart investment decisions and are able to effectively communicate with clients regarding their investment strategies,” said YCharts President and CEO Sean Brown.


Follow WP on FacebookLinkedIn and Twitter