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Asset Allocation Model Usage Can Aid Advisors

Global research and consulting firm Cerulli Associates has identified more than 150,000 advisors (representing $5.8 trillion in total client assets) who could benefit from embracing model portfolios provided by their broker/dealer, custodian, or a third party.

Recognizing the challenges facing advisors in proficiently running client portfolios and in ceding discretion, Cerulli used advisors’ current portfolio construction preferences in combination with the resources and capabilities across myriad practices to create a sizing of the realistic opportunities available to asset allocation model providers.

Cerulli believes that practices lacking dedicated investment personnel present significant opportunity to strategists and home-office consultants who seek to expand model distribution and adoption. As with so many advisors, though, the advisors in this cohort may resist adopting models because they want to own the entire investment process, trading off potential gains in client acquisition for complete ownership of portfolio construction.

“Based on our findings, we believe that in excess of 150,000 advisors would be better served if they were to increase their reliance on model allocations, rather than keeping these responsibilities in their practices. Those fully immersed in portfolio construction may need to shift their business model to focus on financial planning and business development,” states Scott Smith, director at Cerulli Associates.

For asset managers, taking on the role of an allocation provider offers an unparalleled opportunity to maintain their relevance. Instead of allowing their products to become commoditized ingredients used by advisors, managers are increasingly embracing the role as developers of recipes that feature their proprietary strategies as key ingredients. Still, these asset allocation models will require consistent efforts to generate returns that may be difficult to calculate.

Cerulli’s new report, U.S. Asset Allocation Model Portfolios 2018, assists a variety of stakeholders in the asset allocation model segment to assess their own current position and develop strategic goals and plans to achieve them. For more about the findings of the report, visit here.