With its latest partnership, BlackRock continued its steady creep into wealth management, a signal that more asset managers will consider their own model portfolios.
The asset manager announced Tuesday that its model portfolios would be available through 55ip, a platform financial advisors use to create their own model portfolios and investment strategies. The partnership is the first of its kind, at least between 55ip and an asset manager – BlackRock is the only company with its own page on the 55ip website.
Both companies, and perhaps advisors and their clients, stand to benefit from the partnership in different ways.
"The adoption of models is a massive industry trend that saves time for advisors and helps create better outcomes for their clients," Paul Gamble, the CEO of 55ip, said in a statement. The company did not share how many advisors currently use its platform, only that it is growing.
An overwhelming 83% of RIAs use only their own practice’s models – a much higher rate than hybrid firms (64%) and wirehouse advisors (56%) – but that percentage is expected to shrink in the future.
Most advisors just aren’t very good at investment management. Advisors’ portfolios show rampant home bias and Cerulli Associates estimates that 22% of assets overseen by advisors would be better served by model portfolios created outside their practices. In an October report, the research firm estimated that only 7% of practices are adequately equipped to perform their own investment research and portfolio construction.
Still, tax implications of model portfolios have slowed broader adoption in taxable accounts, according to Gamble and BlackRock. The goal of the partnership is to resolve that by offering BlackRock’s model portfolios along with 55ip's automated tax-conscious management and trading.
“Models continue to grow in popularity as advisors seek to free-up time to deliver holistic wealth management. We found that model adoption so far has been heavily concentrated in qualified accounts,” Eve Cout, Head of Model Portfolios at BlackRock, told RIA Intel.
Roughly 70% of BlackRock’s model portfolio assets under management are in qualified accounts, which are most often retirement accounts with tax advantages, according to Cout.
“The partnership with 55ip will significantly accelerate the adoption of BlackRock models with advisors who are looking to scale their practice with models across both qualified and non-qualified accounts,” Cout said.
While the partnership will potentially spur more advisors to use 55ip, BlackRock gets a new shelf for its model portfolios (which are full of BlackRock funds); another opportunity to coax RIAs into using its services and investing client money with it.
Many large wealth managers already use BlackRock’s Aladdin software to test how portfolios will perform under various theoretical economic circumstances. Fewer small wealth managers use Aladdin because they have different technology and investment management needs, making them less likely to use other BlackRock Advisor Center services, including model portfolios. But if advisors are already using 55ip, they might now consider BlackRock’s portfolios, according to Scott Lamont, a technology consultant at F2 Strategy.
“If fund companies are able to follow this lead and partner with (or acquire) these tools, it allows them to provide a much more tailored and captive delivery service for the underlying assets within their funds,” Lamont said.
Lamont said it could be the start of a trend – one that Scott Smith, the director of Advice Relationships at Cerulli Associates, predicted in August and called “the next big opportunity for asset managers.”
BlackRock manages over $65 billion in models globally and almost $20 billion in the U.S., a small fraction of the approximate $6.96 trillion the company managed as of Sept. 30.