A shift in how financial advisors structure client portfolios will drive asset allocation model portfolios to a new $2.9 trillion asset milestone by 2026, predicts a new report from Cerulli Associates.
The findings, published in The Cerulli Report—U.S. Asset Allocation Model Portfolios 2024, offer a fresh take on the unfolding story of advisors outsourcing portfolio construction as they increasingly focus on providing financial planning services.
Cerulli's research shows that by the end of 2023, 13 percent of advisor-managed assets were in model portfolios, with 18 percent of financial advisors and 22 percent of practices using them overall. Adoption of model portfolios is expected to rise further in the coming year, with 34 percent of outsourcer advisors planning to increase their use of models. Among other advisor segments, 41 percent of modifiers and 26 percent of insourcers also intend to expand their reliance on model portfolios.
“The opportunity is readily apparent in the asset allocation model portfolio product landscape for providers of investment product building blocks to take advantage of increasing outsourced portfolio construction,” said Matt Apkarian, associate director at Cerulli Associates.
The growing shift toward open-architecture models, which incorporate a range of third-party investment options, is one of the most prominent trends highlighted in the report. While proprietary products currently dominate the model portfolio landscape, 30 percent of asset manager model providers plan to increase the use of nonproprietary investment options as advisors demand diversified management.
The rise of outsourced portfolio construction among advisors has also been a positive driving force for ETF issuers. In 2023, 31 percent of ETF distribution occurred through model portfolios, with 57 percent of that volume taking place through models outside the issuers’ own firms. Cerulli identified the use of third-party strategists or asset allocation models as one of the top three factors driving the growth of ETF assets.
Custom model portfolios are also emerging as a critical area for asset managers, particularly among broker-dealer and RIA home-office clients. Fifty-five percent of asset managers view custom models as a major opportunity compared to 42 percent who prioritize off-the-shelf models. In fact, building custom models for broker-dealers and enterprise RIAs was named the most important product development initiative for 2024 by 57 percent of model providers, beating out tax-efficient models for taxable clients and expanding customization potential.
"While building out a models business may not fit the capabilities and resource constraints of an investment product provider, seeking placements within models should be one of the top distribution opportunities being targeted by a provider of model building blocks," Apkarian added.
Canadian stocks are on a roll in 2025 as the country prepares to name a new Prime Minister.
Two C-level leaders reveal the new time-saving tools they've implemented and what advisors are doing with their newly freed-up hours.
The RIA led by Merrill Lynch veteran John Thiel is helping its advisors take part in the growing trend toward fee-based annuities.
Driven by robust transaction activity amid market turbulence and increased focus on billion-dollar plus targets, Echelon Partners expects another all-time high in 2025.
The looming threat of federal funding cuts to state and local governments has lawmakers weighing a levy that was phased out in 1981.
RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.
As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.
