Model portfolios have continued their growth trajectory within the US wealth management space, with assets climbing to $6.6 trillion in the second quarter of 2024, according to Broadridge's latest trend report.
The report, which leverages machine learning to track more than $3 trillion in mutual fund and ETF assets across over 40,800 models, highlights significant shifts in how model portfolios are being utilized by wealth managers.
By Broadridge's reckoning, model portfolios now account for 31 percent of the $21.1 trillion in intermediary-managed assets, a 3 percent increase over the previous quarter and a 5 percent rise year-over-year. It predicts that the rise in model portfolios will continue in the coming years, with assetsforecast to hit $11.8 trillion by 2028.
The advisor-led segment remains the largest within the model portfolio landscape, with $3.8 trillion under management, or 57 percent of total model assets. This segment continues to grow as financial advisors increasingly rely on model portfolios to streamline investment management and carve out more time for higher-value services.
The report also underscores the ongoing shift in asset allocations between different product types. For the first time in 2023, ETF assets overtook mutual fund assets within model portfolios, a trend that continued into 2024. By Q2 2024, ETFs comprised 53 percent of model portfolio assets, compared to 47 percent for mutual funds. ETF assets have grown significantly, rising 14 percent since the end of 2023 and surpassing $1.5 billion.
From an asset class perspective, equity funds held the lion's share in model portfolios. As of Q2 2024, equity funds accounted for 65 percent of total model assets, or approximately $1.96 trillion, marking a substantial increase from the third quarter of 2022. By comparison, bond funds held $895 billion in assets, a much smaller share of the market.
While a majority of advisors have pointed to custom portfolios as a differentiator for their practice, survey data by Broadridge suggest custom portfolios are getting a smaller slice of advisors' AUM pie across wealth channels.
Regional broker-dealers have seen the sharpest drop, with custom models' share of advisor AUM falling from 61 percent in Q3 2023 to 36 percent in Q1 2024. Independent broker-dealers and registered investment advisors experienced similar declines, with custom portfolio AUM falling from 46 percent to 39 percent and from 44 percent to 27 percent, respectively, over the same period. Wirehouses, meanwhile, saw a more moderate decline from 46 percent in Q3 2023 to 44 percent in Q1 2024.
Assets held in in-house portfolios have increased, according to Broadridge, with the average share of advisor AUM rising from 28 percent to 36 percent across all channels. RIA advisors led the charge, with average AUM in those portfolios reportedly surging from 43 percent to 60 percent by the first quarter.
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