Investment model marketplaces were one of the advice
industry's buzziest trends in recent years, hyped as a potential disruptive threat to turnkey asset management platforms (TAMPs).
About a half-dozen of these marketplaces launched in 2017 and 2018, offering a digital platform for independent advisers to select third-party investment models. Fintech vendors including Orion Advisor Services, Riskalyze and Oranj all produced their own offerings, as did some major custodians.
(More: NorthStar Financial acquires $10 billion TAMP)
But in 2019, it's unclear how much traction these platforms really have with advisers. I was unable to find a single adviser using a model marketplace to select third-party investments, and the firms won't say how many advisers are actually using the platforms.
"Have you seen any press releases come out about the raving success of any of those model marketplaces? Yeah, me neither," wrote Kyle Van Pelt, a strategist with SS&C Advent, in
a recent blog post. "For as big of a threat as they were supposed to be to TAMPs, that just hasn't become a reality yet."
As the former vice president of partnerships Riskalzye, Mr. Van Pelt helped lead the development of Riskalyze's model marketplace, known as the Partner Store, to help firms take back some of the margin they were giving up to TAMPs. Though he still believes model marketplaces can provide the benefits of managed accounts without having to outsource investment management, he says firms still like using TAMPs to shoulder compliance liability.
A bigger issue is that many advisers just don't yet see a reason to use a model marketplace. While marketplaces can expose advisers to a greater number of strategies from individual experts or smaller providers, most advisers are content with the investment products from big-name asset managers they already use, Mr. Van Pelt said.
"I still think some models will surpass [
separately managed accounts] and [
unified managed accounts]; it's just going to take longer than we expected," he told
InvestmentNews.
Mike McDaniel, Riskalyze's chief information officer, disagreed that the Partner Store wasn't getting traction among advisers. If anything, adoption of the Riskalyze model marketplace has exceeded expectations.
He attributed the success to Riskalyze only bringing aboard a select number of asset managers that were already heavily used by the Riskalyze user base, Mr. McDaniel said.
"We weren't trying to introduce them to brand new asset managers," he said. "Our partners are adviser-focused. We're not going after folks that go direct-to-consumer for their core distribution."
However, Mr. McDaniel wouldn't share specific numbers or metrics about adoption, saying that only some advisers take a model directly from an asset manager and allocate assets towards it. A significant percentage of users take the methodology and customize it into their own, unique model, Mr. McDaniel said.
"For every adviser [who] has been using a model, another four are taking those models as research and making edits," he said.
Orion didn't respond to a request for comment on their model marketplace.
Though adoption of models and strategies provided by asset managers has been slow on the Oranj model marketplace, CEO David Lyon said advisers are using the platform for other purposes. For example, advisers who take a more active role in asset allocation are using models on the marketplace to validate their current investment approach. Those who aren't use the marketplace to find more sophisticated investments than they traditionally offer, Mr. Lyon said.
He added that slow adoption is to be expected among advisers. RIAs have to consider their fiduciary responsibility before switching existing accounts into a new strategy, and the long bull market has given little reason for many to rethink their current approaches.
But a market change requiring some dramatic rebalancing could have many advisers looking for new strategies, Mr. Lyon said.
"It's still very early. It's really just the first inning of a nine-inning game," he added.
