<h1>Cerulli finds that financial advisers do better when sticking with in-house products </h1>

<h1>Cerulli finds that financial advisers do better when sticking with in-house products </h1>
Customizing portfolios introduces human frailty and failure.
MAY 11, 2016
Brokerage and wirehouse reps that bypass the in-house asset allocation models might be selling their clients short, according to the latest research from Cerulli Associates. An analysis of the in-house packaged programs compared to what reps are constructing themselves found that the in-house offerings usually produce superior returns. Comparing quarterly performance over a five-year period through the end of 2014, Cerulli data analyst Frederick Pickering found that the more personalized approach generally hurts performance. The performance disparity is at times subtle and there are quarters when the advisers did better than the house, but the long-term performance favors sticking with what the wirehouses are putting on the shelves. The comparison of the average returns of packaged products and portfolios constructed by advisers, found that packaged products generated a 36.7% gain over the five-year period, while the customized adviser portfolios gained 33.5%. The research also included a hybrid portfolio that allowed for some tweaking of the home office portfolio, which Mr. Pickering described as “home office light,” that gained 33.7% over the study period. “We broadly found that the home office portfolios did better,” he said. Some of the reasons the packaged portfolios performed better, according to Mr. Pickering, relate to a stronger emphasis on fundamentals such as risk-adjusted returns, consistency of investing style, and the tenure of the portfolio managers in which the home-office products are investing. By contrast, Mr. Pickering said, the individual advisers are often influenced by factors that come with having to talk to clients face to face. For the advisers building portfolios, there was greater focus on a fund's reputation among colleagues, the influence of wholesalers, and brand recognition among clients. “That's one of the reasons you see a lot of mutual fund advertising,” Mr. Pickering said. “From an adviser's perspective, it's a lot tougher to pick funds when you have to sit across the table from a client.” Even though home-office models and individual advisers tend to have different ways of building portfolios, Mr. Pickering said the human element might have played the biggest role in the under-performance for advisers. “One of the things we've seen is that in down markets the home office will stay fully invested, but the advisers will sometimes go to cash,” he said. Evidence of that can be seen in the second quarter of 2010, when market volatility pulled the packaged products down 6.6%, but the adviser-managed portfolios lost only 6%. The flipside of that strategy was apparent during the third quarter of 2010 when the packaged products that stayed fully invested gained 8.4%, while the adviser portfolios gained 7.2%. The story repeated itself in the third quarter of 2011, when the packaged products fell 10.6%, compared to a 9.5% drop for the adviser portfolios. But the following quarter, the packaged portfolios gained 5.4%, while the adviser portfolios lagged with a 4.5% gain.

Latest News

UBS client says his wife moved in with their wealth advisor. It got messy
UBS client says his wife moved in with their wealth advisor. It got messy

Advisor accused of scheming to move family trust to firm, lawsuit seeks $10 million in damages.

Gen Zs are grappling with financial challenges in extraordinary times
Gen Zs are grappling with financial challenges in extraordinary times

Young Americans are inexperienced in navigating current stormy waters.

Musk needs to exit role at 'neglected' Tesla, says $3.3B investment firm CEO
Musk needs to exit role at 'neglected' Tesla, says $3.3B investment firm CEO

Early investor in EV firm says it is in crisis and needs a change of leadership.

Nvidia unveils superchips, addresses spiraling cost concerns
Nvidia unveils superchips, addresses spiraling cost concerns

Chipmaker's developer conference comes at a pivotal moment.

Citi slashes 'transformation' bonuses for senior execs
Citi slashes 'transformation' bonuses for senior execs

Three-year program aimed to boost regulatory compliance, culture change.

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