Model portfolio adoption on the rise among advisors

A new report from State Street Global Advisors shows how model portfolios are playing a pivotal role for advisors' practices, with more professionals using them to streamline portfolio management and boost satisfaction among clients.

According to the study, the average percentage of assets under management allocated to model portfolios has risen to 39 percent, up from 32 percent three years ago.

The report draws from survey research State Street conducted in May in collaboration with A2Bplanning and Prodege, which gathered insights from 200 financial advisors managing $25 million or more in assets and 250 individual investors in the US with at least $500,000 in investable assets.

“Model portfolios have evolved into a powerful tool for advisors seeking to scale their practices efficiently while enhancing the quality of personalized, client-centered wealth management,” Brie Williams, global head of advisory solutions and wealth intelligence at State Street Global Advisors, said in a statement Thursday.

Among surveyed advisors, 54 percent reported using custom-built models, while 45 percent relied on models provided by their home office or broker-dealer platforms. Additionally, 53 percent sourced portfolios from third-party providers. Tax personalization emerged as a critical factor, with 85 percent of advisors highlighting it as a key benefit.

According to a separate report published by Broadridge in September, model portfolio assets accounted for 31 percent of the $21.1 trillion in intermediary-managed assets as of Q2 this year, with a bullish forecast of $11.8 trillion by 2028.

State Street's study also underscored the positive impact of model portfolios on client satisfaction. Nearly all investors using these tools (95 percent) expressed confidence in their advisors’ ability to build trust, compared to 79 percent of investors who weren't invested in model portfolios. Similarly, 93 percent of model portfolio users were satisfied with their advisors’ understanding of financial goals, versus 79 percent among other investors.

“By streamlining portfolio management, these solutions enable advisors to focus on delivering holistic financial planning and high-impact advice, positioning their practice for sustainable growth in an ever-changing market,” Williams added.

Despite the benefits of model portfolios, awareness among investors remains limited; only 57 percent said they're familiar with the concept, a figure unchanged since 2019.

"There is a sizeable group of investors who need more information and education on model portfolios," Williams said. "Not only do model portfolios help advisors manage their time more effectively, but they also create opportunities to meet client expectations in ways that enhance satisfaction and foster long-term relationships.”