Balancing efficiency and control key for advisers using model portfolios

While efficiency remains a top priority for Australian advisers, State Street’s Model portfolios and the evolution of advice report has revealed that the profession is now juggling this desire with the need to maintain personalisation of its  service offering.

Based on a survey of financial advisers and investors from Australia and the US, the report found that, while there are efficiency gains for advisers in using model portfolios, they are also holding tight to customisation as a way to maintain control.

Those using model portfolios, the report said, reap the benefits of time saving, operational leverage, and scalability, “without compromising standards”, leading to some advisers taking a more hands-on approach to their use of model portfolios.

State Street explained that this is driven largely by the desire to maintain control through the ability to customise or modify the portfolios to fit their clients’ investment goals or even over concerns of how they think clients may perceive the use of a standard model.

“But model portfolios are becoming increasingly modular and flexible, letting advisers stay involved while still freeing up more of their time for client service,” the report said.

According to a report from Praemium in August, around three in five surveyed advisers (62 per cent) reported using managed accounts, with time savings cited as a key benefit of utilising these solutions.

Namely, it found that 25 per cent of advisers reported saving more than seven hours a week on portfolio management activities, while a further 28 per cent saved four to six hours through operational efficiency gains.

On top of this, around half of advisers using managed accounts said doing so had “made it easier to scale their business”.

However, those not yet using managed accounts raised concerns regarding the perceived loss of control and uncertainty around the value of these solutions, highlighting lingering hesitancy among some advisers.

Touching on this in its report, State Street found that around eight in 10 advisers customise the portfolios they use to some degree, while around 30 per cent modify standard model portfolios on a client-by-client basis.

Others, the report said, opt for a hybrid approach instead, with some 49 per cent switching between using models and building custom portfolios based on client complexity, tax situations, or asset levels.

“This hybrid approach may reflect where advisers are in their journey – testing models, transitioning, or still defining what outsourcing looks like for their practice. It may also point to a belief that selective adjustments help preserve a sense of control. Whatever the motivation, modifiers and customisers have embraced the foundational rationale for models but still want optionality,” the report said.

Notably, around half of advisers surveyed (51 per cent) said they customise portfolios because that is what their clients expect of them. Meanwhile, 46 per cent said they do so to maintain alignment with clients’ investment strategies, and 44 per cent said it is part of their value proposition.

Despite this, State Street said that it believed clients don’t necessarily expect their adviser to customise these portfolios.

“Our research shows that when clients know they’re in a model, and understand how it connects to their financial plan, satisfaction increases significantly,” the report said.

For those wanting to utilise model portfolios, ensuring clients understand what they are and how they are being used proved essential for their overall confidence.

Looking at Australian investors who knew they were in a model portfolio, 78 per cent said their adviser had walked them through the model chosen, 85 per cent said they felt involved in the overall process, and four in five (88 per cent) felt their portfolio was designed to meet their financial goals.