The use of model marketplaces for portfolio management has exploded in recent years. Global investment management corporation, BlackRock, estimates that there is around $2.7 trillion invested across all types of investment models. That $2.7 includes home-office model platforms, built and maintained by a dedicated in-house team, third-party models from Asset Managers and Strategists, and Advisor-customized model portfolios.
Historically, there have been limited ways for independent RIA’s to easily access and implement third party model strategies at scale. However with the rapid proliferation of new model platforms and marketplaces, RIA’s are starting to be able to have access to cost-effective models that are easy to implement. And that’s potentially a good thing for many firms.
Model platforms represent a compelling opportunity for advisors. Advisors who leverage model platforms can cut the time they spend on investments and administration in half, meaning they have twice as much time to spend with clients and on staff development.
RIA firms tend to use third-party model platforms in one of three scenarios. The first is total outsourcing of portfolio management to models. This is beneficial to firms in which investment research and portfolio construction are not core competencies, or for advisors who prefer to focus on financial planning and delegate the selection of investment vehicles. Another use of models is for the cost-effective servicing of lower-value accounts, enabling advisors to deliver a quality solution for those clients with less of a time commitment. The third is to employ model “sleeves,” or specific allocations to 3rd party managers in asset classes in which the firm may not have sufficient expertise in-house, such as international or alternative investments.
For many firms, the decision to use model platforms can mean the difference between growing and standing still. The good news is that there are more choices available now that make economic sense for advisors. As more advisors take advantage of models to free up time for client cultivation and new business, we expect to see the trend towards model platforms accelerating in the RIA segment.
For clients of the Black Diamond® Wealth Platform, building models has never been more efficient. With direct and integrated access to the SMArtX managed account platform, it enables advisors to easily build highly customized portfolios employing any combination of traditional and alternative models and strategies.