Model Portfolios Build Clients’ Trust in Their Advisors

A recent survey by Natixis Investment Managers found that model portfolio users are better off than their counterparts.


Illustration by RIA Intel

Individuals who invested in portfolios overseen by professional asset managers may be less stressed, more trusting of their advisors, and more financially confident than peers who don’t use models, according to a new study by Natixis Investment Managers.

Natixis, in conjunction with CoreData Research, surveyed more than 11,000 global investors in March and April 2023, and the same period in 2022. About 1,200 of the respondents were from the U.S.

Natixis found that only 11 percent of model portfolio users were stressed, compared to 23 percent of non-model investors.

Forty-five percent of model investors said they felt confident in their finances, while just 24 percent of non-model investors said the same.

According to the report, 78 percent of model investors said they viewed volatility as an investment opportunity, while just 47 percent of non-model clients said the same. Similarly, 70 percent of model portfolio clients said they should invest more to keep pace with inflation, compared to 40 percent of non-model clients.

Ninety-seven percent of model investors said they trusted their financial advisor when making financial decisions compared to 73 percent of non-model clients. The majority of model clients (80 percent) also felt that inflation underscored the need for professional advice, compared to just 48 percent of non-model clients.

Despite the benefits, only about half of the investors surveyed said they were invested in models. Mass market investors were equally as likely as mass affluent investors to be invested in model portfolios.

Fifty-one percent of U.S. wealth managers and advisory firms said they planned to offer third-party model portfolios, focusing on tax efficiency, income, alternatives, and sustainability, according to the report.

Financial planning was one of the key concerns of individuals, according to the report. And advisors have limited time.

According to the Natixis, advisors spend at least 9 percent of their time prospecting each week.

“Model portfolios make life easier for the advisor because the allocation percentages and the investments in the portfolio are predetermined. So the advisor doesn’t have to go and scour the market for various investments to fill a target allocation,” said Ronnie Colvin, founder of Fractional Planner, an outsourced financial planning business for advisors and a former advisor.

It also provides an extra layer of due diligence, according to Natixis. Seventy-seven percent of wealth managers said that model portfolios help them manage risk, all while providing a more customized client experience.

“As long as the model that’s chosen is appropriate for the client’s goals and financial situation, then it means it could potentially shave hours of work for the advisor,” said Colvin. But he stressed that it doesn’t make sense for all clients.

“It’s a little less useful for ultra-high net worth clients because sometimes their needs are very esoteric, like for estate planning purposes or if they’ve got a lot of international holdings. It doesn’t work very well for that kind of thing,” he said.

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