Younger advisors lean on model portfolios to chase wealthier clients

In yet another sign of commodification in investment management, financial advisors are increasingly using pre-built models as a tool to shift their practices upmarket and focus on client relationships rather than portfolio construction.

According to new research from Cerulli Associates, advisors who outsource portfolio management spend just 10.6% of their time on investment oversight. That frees up significantly more hours for client-facing work – an average of 63.5% of their time goes toward activities like meetings and client meetings.

The Cerulli report found the trend is especially pronounced among younger, less experienced advisors operating smaller practices. Outsourcers tend to be under age 49 with just over 18 years of experience on average, with typically leaner staffing structures compared to advisors who build custom portfolios in-house. Many outsourcers also lack specialized investment personnel, making the operational efficiency of model portfolios particularly valuable.

The shift reflects a deliberate strategic choice. Four in 10 advisors using outsourced models cite advanced planning strategies as highly valuable services. This suggests many are leveraging models to spend more time acquiring clients and moving their businesses toward higher-level wealth management, which is where clients with the largest assets are focused.

"In many cases, broker-dealer training programs have done a good job educating up-and-coming junior advisors on the benefits of leveraging model portfolios," said Kevin Lyons, senior analyst at Cerulli. "They are more likely to feel comfortable and confident relying on financial planning and, increasingly, tax management as the primary pillars of their competitive positioning."

More than 87% of advisors using outsourced models find value in three key support areas: competitive product information, best practices shared by other advisors, and direct access to portfolio managers and product specialists. This demand points to a critical role for model providers: keeping advisors informed about how the models work so they can explain investment strategies to clients during meetings.

"Model providers will need to keep the advisor informed on the nuances of the products and the asset allocation framework," Lyons adds, noting that this knowledge transfer matters when advisors meet with clients. The emphasis on best practices also reflects these advisors' hunger to develop their practices and grow.

Cerulli's segmentation reveals striking differences in client bases. Outsourcers predominantly serve clients with less than $2 million in investable assets, with 40% working with clients below $500,000. In contrast, advisors who build custom portfolios are more likely to manage relationships with clients holding $2 million to $5 million (31%) or above $5 million (27%).

The data also showed a slight divergence between branch network and independent advisors. Branch-based advisors were most likely to say using models lets them spend more time on financial planning (65%) compared to indie advisors who cited the time it frees up on trading and rebalancing (61%). 

Among advisors not using models in their practices, three-fifths said models do not meet all the unique needs of their clients, while 49% said they offer portfolio construction and investment selection as a differentiated service for clients. Forty percent were concerned about the added layer of fees.

"Advisors go to model portfolios seeking efficiencies, so having receptive, informed client service and readily available reporting and commentary can be important features [for providers]," Cerulli said.