In today’s world, the ability for financial advisors to consistently meet evolving client expectations of improving investor outcomes is being facilitated by almost constant advancements in technology. But these evolving client demands and the related explosion of technology tools can prompt the question: what is the financial advisor’s primary value proposition? Some advisors believe their primary value comes through constructing and managing bespoke portfolios (utilizing a Rep as PM program), while others view that spending time on financial planning and behavioral coaching (while utilizing third-party or home office models to fill a client’s asset allocation) is of greater value to their clients’ outcomes.
Benefits of Bespoke Advisor-managed Portfolios:
Although the statistics point to the benefit of using models, Rep as PM is the fastest growing advisory program over the last 5 years, second only to UMAs, according to Cerulli.1
- Proponents of bespoke portfolio construction believe that Rep as PM programs enable them to perform more effectively during down or volatile markets, and advisors often believe this is a key way to justify advisory fees. There is also a view that this approach differentiates advisors from self-serve and robo-advisory options.
- For HNW clients, direct indexing – which can be facilitated via some Rep as PM programs - can differentiate from passive, low-fee index products and allow for the generation of tax alpha, by leveraging the portfolio management skills of the advisor.
Benefits of Third-Party Models & Outsourced Portfolio Management
- Vanguard Research suggests that most of an advisor’s alpha-generation comes from behavioral coaching (approx. 150 bps).2
- While many advisors believe that advisor-managed portfolios will outperform models in any given year, these portfolios often exhibit more occurrences of significant underperformance and significantly more volatility than that of fund strategist models.
- The use of third-party investment management frees up the advisor to spend more time on client relationships, behavioral coaching, and financial planning, as well as other revenue-generating activities.
You Can Have the Best of Both Worlds
Vestmark maintains that the necessity to decide between advisor-driven bespoke portfolios and using models is a false choice. With the right technology partner, financial advisors can have the freedom to construct portfolios outside of product-centric program silos, in line with what best fits the needs of individual clients, all in a scalable way.
The VestmarkONE® platform enables advisors to view and use investment vehicles – including funds, ETFs, third- party models, SMA managers, and individual equity and fixed income securities – as portfolio building blocks, providing many benefits to advisors, investors, and the home office.
- Advisors: Leverage a range of portfolio building blocks on a single platform, enabling multiple discretionary parties in a single account, with scalable customization at the account level for accounts of all sizes.
- Investors: Enjoy access to more sophisticated portfolio solutions (including options strategies, a blend of outside managers with advisor’s management, etc.), consistency in household-level reporting, and transparency in the pricing relationship with advisors.
- Home Office: Enable the home office to more effectively balance enterprise risk and advisor autonomy – allowing you to attract and retain advisors at both ends of this spectrum.
Learn More about Vestmark’s solution.
1 Cerulli Associates. “U.S. Managed Accounts 2019: The Challenge of New Platforms.” Ch.2, pg. 54. 2019.
2 Vanguard. “Putting a value on our value: Quantifying Vanguard Advisor’s Alpha.” Pg. 8. 2019.
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