Supporting this, the survey found a strong correlation between model users and younger, smaller advisory practices, with 87% of outsourcer practices operating in a core market of clients with less than $2 million in assets. Meanwhile, more than 22% of insourcer practices had the heft required, operating in a market of clients with more than $2 million in assets.
Seen through the lens of average portfolio size, Cerulli found that the firms that use models have average client portfolios of $703,720, and the firms that do not use models have average client portfolios of $4,679,446.
Over time, the research firm said it anticipates the average client size for model users will grow as those advisors will have more time to focus on relationship management.
“This creates a competitive advantage for younger advisors by allowing them to service more clients than more traditional older advisors,” the survey noted.
Another trend bolstering model portfolio use is the advisory industry’s transition to a financial planning-oriented service model from a stock-picking, investment-focused model, the survey said.
“We do believe there remains a place in the marketplace for purely transactional, brokerage-based relationships, but we have observed and believe it will continue to be a shrinking market opportunity,” Rose said. “Many advisors’ time would be more effectively spent developing deeper relationships with their clients through financial planning, where they can expand the extent to which they are seen by their clients as a trusted advisor by offering a wider range of advice services to include the core financial planning elements such as retirement income planning, insurance planning, education planning, and budgeting.”
In fact, as of 2023 Cerulli said it expected 82% of clients will be receiving either comprehensive or targeted financial planning advice along with investment advice.
“The effective use of model portfolios can increase advisor efficiencies and service offerings in both maturing and fully mature practices, in a variety of ways depending upon the preference of the practice,” the survey said. “We anticipate this trend will gain traction among advisors in the future as they seek to improve their scale and service differentiation.”
Cerulli said the data for the survey was gathered in the fall during the firm’s annual advisor survey of more than 1,200 firms, and the added insights gleaned over time through the firm’s ongoing research in financial services.