Advisors Can Enhance Value Proposition for Clients With Model Portfolios

This is one of those years that can weigh on investors, but that provides an opportunity to bolster credibility and client servicing. Model portfolios can help with those objectives.

ETF managed portfolios, including the expansive Modern Alpha series offered by WisdomTree, are investment strategies that hold more than 50% of assets invested in ETFs and represented one of the fastest-growing segments in the separate accounts space.

Model portfolios are taking on increased importance following equity market volatility earlier this year because clients are placing added emphasis on the quality of advice and education they receive from their advisors.

“The number of clients who value the high-quality financial services provided by advisors increased by 30%,” said Brad Shepard, head of the advisor at WisdomTree, in a recent note. “The number of clients who felt it was important for an advisor to use technology to enhance investment decisions increased by 5% post-volatility.”

Meeting Client Challenges

Packaging ETFs together in so-called model portfolios for financial advisors and their clients will continue to be a key driver of the industry’s growth in the coming years. The low-cost and index-based financial products are ideal portfolio building blocks.

When speaking with their advisors, investors tend to care about a few key issues, such as maintaining or improving their lifestyle throughout retirement without running out of money, ensuring their legacy with family and philanthropy, and managing taxes.  With an individual’s general life expectancy increasing, investors face two potential challenges: lower interest rates and lower U.S. equity returns.

“Clients view their advisor as the expert in the relationship, and they expect them to leverage technology, resources, and third-party expertise to provide them with the best investment options,” notes Shepard. “Third-party models can help advisors meet clients’ expectations as well as positioning them as the quarterback of the relationship. We believe that bringing models into the conversation as a foundational resource can enhance advisor-client relationships and help drive business growth.”

ETF model portfolios may offer financial advisors the targeted outcomes that their investor clients desire and data confirm the model portfolio is expanding rapidly.

“Third-party model portfolios are on the rise–more than 400 have been launched since 2018, according to Morningstar’s 2020 Model Portfolio Landscape,” writes Morningstar analyst Jason Kephart in a recent note.

WisdomTree model portfolios feature a mix of the issuer’s own products as well as funds from other major ETF sponsors.

For more on how to implement model portfolios, visit our Model Portfolio Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.