New study shows advisors choosing SMAs over model portfolios

New study shows advisors choosing SMAs over model portfolios
Fewer financial advisors expect to increase allocations to model investment portfolios over the next year, opting for SMAs instead.
FEB 06, 2024

Models are growing less super lately – at least when it comes to advisor investment portfolios.

According to data released Tuesday from analytics and advisory firm Escalent Financial Services, fewer financial advisors expect to increase allocations in model investment portfolios over the next year, but instead are opting for separately managed accounts. The report attributes this shift to advisors seeking increased customization and their desire to align investment strategies with client expectations.

“The extent to which advisors employ model portfolios and SMAs has the potential to significantly impact how asset managers operate within the wealth management industry,” Meredith Lloyd Rice, vice president at Escalent, said in a statement.

The report showed only one in five (22 percent) advisors anticipates relying more on model portfolios in the next year, a five-percentage-point drop from 2022. Concerns about underperformance and fees, in addition to the demand for greater customization and increased fund options, are behind the stalling growth of model portfolios, the report said.

Meanwhile, the study shows advisors anticipate substantial increases in their SMA holdings over the next two years, with average allocations projected to reach 26 percent in 2025, up from 18 percent currently. The report revealed that this trend is even more pronounced among advisors serving high-net-worth clients, who expect their average allocations to climb from 23 percent in 2023 to 31 percent in 2025.

“Despite expectations that advisor reliance on model portfolios would grow, we’re seeing a leveling off in adoption,” Lloyd Rice said. “Advisors are reevaluating whether model portfolios offer the performance and sophistication their more affluent clients demand.”

Despite the fact that only three in 10 (29 percent) advisors using model portfolios reported increasing their use over the last year, those who did reportedly said they appreciated “having more time to focus on engaging with clients and building relationships.”

“For advisors serving high-net-worth clients, customization and tax management is key, and this is one of the factors fueling the growth of SMAs and direct indexing,” Lloyd Rice added.

Commission-free annuity transactions are on the rise. Here's why

Latest News

More workers dipped into their retirement savings last year, Vanguard finds
More workers dipped into their retirement savings last year, Vanguard finds

Sneak peek into annual defined contribution plan report shows average participant balances reached an all-time high amid rising equity markets.

Decades-old will leaves fate of late actor Gene Hackman's $80M fortune uncertain
Decades-old will leaves fate of late actor Gene Hackman's $80M fortune uncertain

The iconic actor's death alongside his wife, Betsy Arakawa, leaves pressing questions about what happens next to his assets.

Fallen tech stocks fail to entice wary investors
Fallen tech stocks fail to entice wary investors

Big tech firms like Alphabet and Amazon are trading at bargain valuations, but a risk-averse market has meant no one's biting.

Social Security Administration sets record straight on dead people getting beneifts
Social Security Administration sets record straight on dead people getting beneifts

Of millions of deaths reported yearly, just a fraction of a percent are "erroneously reported" cases that need to be corrected, the agency said.

Trillions wiped off equities but don't worry, it’s 'healthy' says Bessent
Trillions wiped off equities but don't worry, it’s 'healthy' says Bessent

US Treasury secretary says that markets will 'do great' over longer term.

SPONSORED Beyond the all-in-one: Why specialization is key in wealth tech

In an industry of broad solutions, firms like intelliflo prove 'you just need tools that play well together'

SPONSORED Record growth: Interval funds emerge as key players in alternative investments

Blue Vault Alts Summit highlights the role of liquidity-focused funds in reshaping advisor strategies