Asset-allocation model portfolios poised to become a $2.9T business by 2026

Asset-allocation model portfolios poised to become a $2.9T business by 2026
Anticipated rise in advisors' model use offers an opportunity for asset managers, says Cerulli.
SEP 25, 2024

A shift in how financial advisors structure client portfolios will drive asset allocation model portfolios to a new $2.9 trillion asset milestone by 2026, predicts a new report from Cerulli Associates.

The findings, published in The Cerulli Report—U.S. Asset Allocation Model Portfolios 2024, offer a fresh take on the unfolding story of advisors outsourcing portfolio construction as they increasingly focus on providing financial planning services.

Cerulli's research shows that by the end of 2023, 13 percent of advisor-managed assets were in model portfolios, with 18 percent of financial advisors and 22 percent of practices using them overall. Adoption of model portfolios is expected to rise further in the coming year, with 34 percent of outsourcer advisors planning to increase their use of models. Among other advisor segments, 41 percent of modifiers and 26 percent of insourcers also intend to expand their reliance on model portfolios.

“The opportunity is readily apparent in the asset allocation model portfolio product landscape for providers of investment product building blocks to take advantage of increasing outsourced portfolio construction,” said Matt Apkarian, associate director at Cerulli Associates.

The growing shift toward open-architecture models, which incorporate a range of third-party investment options, is one of the most prominent trends highlighted in the report. While proprietary products currently dominate the model portfolio landscape, 30 percent of asset manager model providers plan to increase the use of nonproprietary investment options as advisors demand diversified management.

The rise of outsourced portfolio construction among advisors has also been a positive driving force for ETF issuers. In 2023, 31 percent of ETF distribution occurred through model portfolios, with 57 percent of that volume taking place through models outside the issuers’ own firms. Cerulli identified the use of third-party strategists or asset allocation models as one of the top three factors driving the growth of ETF assets.

Custom model portfolios are also emerging as a critical area for asset managers, particularly among broker-dealer and RIA home-office clients. Fifty-five percent of asset managers view custom models as a major opportunity compared to 42 percent who prioritize off-the-shelf models. In fact, building custom models for broker-dealers and enterprise RIAs was named the most important product development initiative for 2024 by 57 percent of model providers, beating out tax-efficient models for taxable clients and expanding customization potential.

"While building out a models business may not fit the capabilities and resource constraints of an investment product provider, seeking placements within models should be one of the top distribution opportunities being targeted by a provider of model building blocks," Apkarian added.

Latest News

Judge OKs more than $90 million in settlement money for GWG investors
Judge OKs more than $90 million in settlement money for GWG investors

Mayer Brown, GWG's law firm, agreed to pay $30 million to resolve conflict of interest claims.

Fintech bytes: Orion and eMoney add new planning, investment tools for RIAs
Fintech bytes: Orion and eMoney add new planning, investment tools for RIAs

Orion adds new model portfolios and SMAs under expanded JPMorgan tie-up, while eMoney boosts its planning software capabilities.

Retirement uncertainty cuts across generations: Transamerica
Retirement uncertainty cuts across generations: Transamerica

National survey of workers exposes widespread retirement planning challenges for Gen Z, Millennials, Gen X, and Boomers.

Does a merger or acquisition make sense for your firm? Why now is the perfect time to secure your firm’s future
Does a merger or acquisition make sense for your firm? Why now is the perfect time to secure your firm’s future

While the choice for advisors to "die at their desks" might been wise once upon a time, higher acquisition multiples and innovations in deal structures have created more immediate M&A opportunities.

Raymond James continues recruitment run with UBS, Morgan Stanley teams
Raymond James continues recruitment run with UBS, Morgan Stanley teams

A father-son pair has joined the firm's independent arm in Utah, while a quartet of planning advisors strengthen its employee channel in Louisiana.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.

SPONSORED Beyond the dashboard: Making wealth tech human

How intelliflo aims to solve advisors' top tech headaches—without sacrificing the personal touch clients crave