What Clients Really Think About Model Portfolios

Head of Advisor Innovation
07/20/2020

This article is relevant to financial professionals who are considering offering model portfolios to their clients. If you are an individual investor interested in WisdomTree ETF Model Portfolios, please inquire with your financial professional. Not all financial professionals have direct access to these model portfolios.

The number of third-party asset allocation models has grown exponentially over the last five years. But, although they’re available through a number of different sources, including strategists, asset managers and advisor home offices, it turns out that very few advisors are using them. At WisdomTree, we wanted to understand why.

To find out, we conducted extensive research into model portfolio perceptions and adoption. What we found was quite surprising—and, we think, a major missed opportunity for advisors. The variances between what advisors believe and the reality were quite astounding.

Advisors have misperceptions about how clients perceive models

Our research uncovered that many advisors associate investment management with their core value proposition. These advisors either do not believe in outsourcing this role or do not want to do so out of concern that it may damage their advisor–client relationships. Their perception is that they are expected to make all the investment calls to build portfolios tailored for their clients.

However, we found this wasn’t true from their clients’ perspectives.

First—clients welcome models

While many investors are unaware of model use, nearly half of those who responded believe their advisor may already be using a model anyway. And the majority of clients are open to this. In fact:

  • 86% of clients are not only open to, but actually welcome, model usage in their portfolios
  • And, following the recent volatility, that number increased to 90%— including 83% of Boomers

Second—clients (yes, Boomers too) believe models provide additional expertise that will help their portfolios

The truth is that clients actually find comfort in believing they will receive the benefit of the collective expertise of an asset management firm’s analysts, strategists and PhDs. And in clients’ minds, when advisors employ a third-party model, they are combining this valuable research and data with their intimate knowledge of their clients’ needs to provide a tailored solution to their clients’ unique situations and goals.

  • In fact, more than half of investors—63%—believe that financial advisors using third-party models are providing a more sophisticated asset allocation approach backed by the extensive research and technology of an asset manager’s team—this includes 64% of Boomers
  • 63% of clients with advisors—and 59% of those without—strongly agree that, “A financial advisor using a preset investment model portfolio provided by either their firm or a third-party source is comparable to a doctor that has access to artificial intelligence (AI) networks that contain millions of medical records and case studies to assist in diagnosis or successful treatment outcomes.”

Third—clients believe models will positively affect their portfolio performance

Our research revealed that 64% of clients believe the most important characteristic an advisor can have is to act in their clients’ best interests. And for many of them, that may mean using models.

  • 63% of investors (47% of Boomers, 61% of Gen Xers and 78% of Millennials) believe that using models will have a positive impact on their overall portfolio.
  • In fact, we spoke to clients after the recent market volatility and discovered that the number of clients who felt it was important for an advisor to use technology to enhance investment decisions increased by 5% post-volatility.

The bottom line is that clients like the idea of third-party models and using them may help advisors meet their clients’ expectations.

In an upcoming blog, we’ll discuss how clients view their advisors and how the use of models can affect their ability to retain existing clients and win new ones.

For more information on our model portfolios, please visit our website.

 

Important Risks Related to this Article

For financial professionals: In the event that you subscribe to receive a WisdomTree model portfolio, you will receive investment ideas from WisdomTree in the form of a model portfolio. The information is designed to be used by you solely as a resource, along with other potential sources you consider, in providing advisory services to your clients. WisdomTree’s model portfolios are not intended to constitute investment advice or investment recommendations from WisdomTree. WisdomTree is not responsible for determining the securities to be purchased, held and/or sold for your clients’ accounts, nor is WisdomTree responsible for determining the suitability or appropriateness of a model portfolio or any securities included therein for any of your clients. WisdomTree does not have investment discretion and does not place trade orders for any of your clients’ accounts. Information and other marketing materials provided to you by WisdomTree concerning a model portfolio—including holdings, performance and other characteristics—may not be indicative of your client’s actual experience from investing in one or more of the funds included in the model portfolio. The model portfolios, allocations and data are subject to change.

For end users: WisdomTree’s model portfolios are not intended to constitute investment advice or investment recommendations from WisdomTree. Your investment adviser may or may not implement WisdomTree’s model portfolios in your account. WisdomTree is not responsible for determining the suitability or appropriateness of a strategy based on WisdomTree’s model portfolios. WisdomTree does not have investment discretion and does not place trade orders for your account. This material has been created by WisdomTree and the information included herein has not been verified by your investment adviser and may differ from information provided by your investment adviser. The model portfolios, allocations and data are subject to change.

Investors and their advisors should consider the investment objectives, risks, charges and expenses of the funds included in any model portfolio carefully before investing. This and other information can be obtained in the fund’s prospectus by visiting www.wisdomtree.com for WisdomTree Funds. Please read the prospectus carefully before you invest in a fund. WisdomTree Asset Management Inc. does not endorse and is not responsible for or liable for any content or other materials made available by other ETF sponsors.


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About the Contributor
Head of Advisor Innovation