For decades, advisors have marketed themselves as portfolio managers, tailoring asset allocation to each client’s unique goals, risk tolerance and life stage. But a silent revolution is underway: model portfolios—pre-constructed investment portfolios—are rapidly replacing boutique portfolio management.
Growing Reliance on Models
A Cerulli study found 13% of advisor assets were managed via model portfolios at the end of 2023, with 34% of “outsourcer” advisors planning to shift even more capital into models over the next year.Over 80% of fee-based advisors now use models for at least some client assets, up from $6.44 trillion to $7.96 trillion in model assets in just one year, according toThe Wall Street Journal. Finally, Morningstar found that 27% of advisors avoid models entirely to maintain control and customization and Cerulli reports that only 23% still build fully customized portfolios—a clear sign that models now dominate.
And that’s before we even consider the impact of robo advisors. According to Statista, the robo-advisory market is expected to reach $7 trillion in AUM at the end of 2029. The largest of them is Vanguard, which is also a low-cost provider of ETFs, further eroding advisor stock picking and cannibalizing advisors’ businesses.
What This Means for Financial Advice
When advisors pay ~10 bps to license these models, they get turnkey portfolios with minimal hands-on work, but clients often pay 50–150 bps all in. This fee structure raises tough questions:
Why should a HNW individual pay for investment management advisory when you can license the same model yourself?
When multiple advisors use identical models, where’s the value-add?
Do these models limit exposure to real estate, private equity, venture capital, or advisor-driven research? And,
How will innovation originate, issuers of new investment products to advisors?
The most important question, however, is: when clients realize they can license models independently—for far less—will they lose the motivation to pay higher advisory fees?
The Advisor’s Crossroads
Clients paying full advisory fees expect more than model licensing—they want a truly custom-to-them asset allocation. Further, larger clients want access to private funds, real estate, hedge, venture and bespoke private equity strategies.
If an advisor’s main value-add is a model portfolio that hundreds of other advisors are using, what differentiates them? Without differentiation, clients may simply self-allocate using licensed models.
Advisors leveraging model portfolios can choose to place a greater focus on planning, tax, insurance, and niche alternatives—and do not forget asset gathering.
Bottom Line
Model portfolios offer efficiency and scale. However, by commoditizing the investment process, they risk making advisor-driven investing obsolete—unless advisors clearly expand and communicate their unique value to truly personalize their services for each client.
It is an interesting time for advisors as they can decide and control their fate. Will they become trusted anchors offering deep planning and alternatives beyond models or remain generic model resellers—a position vulnerable to disruption.
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