Model Portfolios Can Help Financial Advisors Enhance Their Businesses

Financial advisors seeking to enhance their business practices can consider outsourcing components of asset management through model portfolios.

In the recent webcast, Decision Made: Why to Outsource Your Asset Management, Gracie Hynes, Vice President, Goldman Sachs Asset Management, argued that financial advisors can more efficiently manage their time and business practices through third party model portfolio strategies. Advisors are already spending nearly 1,000 hours per year on asset management activities while juggling many other roles and responsibilities.

However, when investors were asked why they choose to work with an advisor, 3% indicated that investment performance was the main reason, which was much less important than factors like service, reputation, and relationships.

As a way to help financial advisors better-serve their clients, model portfolios can save time and resources, providing sophisticated investment strategies through a simplified process. Outsourcing components of asset management by using model portfolios may free up time for advisors to focus on strengthening client relationships and growing their business. According to recent surveys, advisors who use third party models nearly quadrupled (3.5x) the number of new clients in a year and more than doubled their annual asset growth.

Model portfolios can also help deliver more investment expertise, diversification, and flexibility.

“We bring decades of experience to products that simplify managing money,” Christopher Lvoff, Managing Director and Senior Portfolio Manager, Goldman Sachs Asset Management, said, adding that “our models offer advisors comprehensive, ready-to-implement portfolios.”

Goldman Sachs combines a strategic, long-term approach with tactical views to provide a diversified asset allocation strategy that seeks to balance risk and return while navigating changing markets. Investors can choose the implementation strategy that fits their needs. Options to use either tax-efficient ETFs or mutual funds managed by either Goldman Sachs or by third parties provide flexibility to meet investment objectives. Additionally, the multi-asset investing team, Multi-Asset Solutions (MAS), has designed custom portfolios for some of the world’s largest investors for over 20 years. This team has more than 15 years of experience managing multi-asset model portfolios.

GSAM implements a dynamic asset allocation using a blended qualitative and quantitative approach.

“Our three-step investment process is overseen by MAS’ model portfolio managers, who have an average of 25 years of industry experience and meet weekly to oversee the asset allocation strategy and monitor markets,” Lvoff said.

Flexibility and Adaptability

The model portfolios are dynamic in nature and are adjusted over time to account for shifting global views and address current market conditions. For example, portfolio changes made on the last rebalance include an overweight equity position and underweight fixed income tilt.

“We believe asset classes like emerging markets equity and U.S. small-cap equity are recovering,” Lvoff noted.

“We expect very strong U.S. GDP growth in 2021, resulting in equally robust corporate earnings growth,” he added.

Nevertheless, investors can still take on more conservative or aggressive market plays, depending on their investment horizons. For example, the Ultra Conservative Income model portfolio has a 20% equity tilt and 80% position in fixed income assets with a three- to five-year time horizon. Alternatively, Goldman Sach’s Enhanced Growth model portfolio has 90% in equities and 10% in fixed income with a 25-year time horizon. The firm offers eight risk profiles in total.

Michael Darling, Vice President and Sales Manager, Goldman Sachs Asset Management, explained the Goldman Sachs is committed to clients and building consultative relationships.

Goldman Sach’s open architecture models, or MAPs products, use funds managed by third parties. Independent fund selection is chosen to best meet investment objectives and boasts a long-term track record of performance. Additionally, they are backed by a Dedicated Alternative Investments and Manager Selection (AIMS) Team of more than 150 professionals focused on third party manager selection.

Financial advisors who are interested in learning more about ETF model portfolios can watch the webcast here on demand.