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Model portfolio market ends Q1 2020 with USD3tn in AUM


A new report from Broadridge Financial Solutions has revealed that there were USD3 trillion in assets under management (AUM) in model portfolios at the end of Q1 2020. The majority of assets were in adviser-led model portfolios (53 per cent), followed by home-office model portfolios (30 per cent) and third-party model portfolios (17 per cent). Derived from a proprietary algorithm developed by Broadridge, the report found that model portfolio assets contracted 16 per cent in Q1 2020 from a record high of USD3.5 trillion in Q4 2019 as a result of the selloff related to Covid-19.

The market environment has disrupted model portfolios’ asset mix, with equities tanking and bonds spiking in Q1 2020. Bond funds have grown the fastest since 2018 at an 18 per cent annual growth rate, followed by mixed assets at 4 per cent, while equity funds’ growth streak has halted. Bond funds gained a 5 per cent share in model portfolios at the expense of equity funds in Q1 2020, as the pandemic wiped out nearly USD180 billion of equity assets.
Model portfolio popularity has been increasingly driven by ETFs, which rose to 43 per cent of assets from 36 per cent in Q1 2018. By comparison, ETFs comprise 30 per cent of the retail intermediary marketplace.
Mutual fund-only model portfolios accounted for 42 per cent of all model portfolios in Q1 2020, while ETF-only model portfolios grew fastest at 36 per cent, representing one-third of all model portfolio types. Hybrid strategies blending mutual funds and ETFs accounted for 25 per cent of all model portfolio strategies. Active mutual fund share held steady for the quarter at 53 per cent, despite having steadily eroded over the past two years.
“The low-cost and tax-efficient nature of ETFs continues to be particularly appealing as asset managers build model portfolios,” says Andrew Guillette, Senior Director of Americas Distribution Insights at Broadridge Financial Solutions. “As a result of the market environment caused by Covid-19 in the latter half of Q1 2020, we expect strategists at centralised research groups, as well as advisors running their own model portfolios, to rebalance their asset mix in the months ahead.”
The model portfolio industry became more concentrated in Q1 2020, with 64 per cent of assets controlled by the top 10 asset managers, up from 62 per cent at the end of 2019. The industry’s top 10 model portfolios collectively represent USD74 billion, or 7 per cent, of the total USD1.0 trillion invested in model portfolios directly tracked by Broadridge, with home-office model portfolios dominating this segment.
The popularity of model portfolios among younger advisors underscores a broader industry shift to holistic financial planning. According to separate survey research conducted by Broadridge, current financial advisors under the age of 40 have nearly 60 per cent of their fee-based advisory assets in model portfolios. In two years from now, those same respondents expect their fee-based advisory assets to be 66 per cent in model portfolios. Twenty-six percent of respondents under 40 expect to have 100 per cent of their fee-based advisory assets in model portfolios within two years, allowing for an increased focus on client service.
Similarly, 53 per cent of advisors believe that in three years they will be able to devote more time to growing and scaling a practice, compared to 40 per cent today.
Sixty-eight percent of financial advisors would like to allocate more time to client acquisition, while 66 per cent would like to spend more time on client-facing activities.
Broadridge’s proprietary algorithm provides transparency on model portfolio activity across USD14 trillion of directly sourced mutual fund and ETF assets. Sample dimensions tracked include model type (home-office, third-party, advisor-led), investment style, active versus passive, and mutual fund versus ETF. Analytics are available at the industry, channel, distributor and city level.
The Broadridge survey research included within this press release was conducted by 8 Acre Perspective to assess the world of financial advice and guidance. A total of 300 financial advisors across wire, regional, IBD and RIA channels completed the survey, which was fielded from February 21 to March 1, 2020.

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