Investors are more confident when using model portfolios, Natixis study reveals
Model portfolios have been expanding in the retail investment space in recent years, offering individual investors the kind of heavily vetted and professionally constructed portfolios previously only available to institutional investors.
But there are other benefits to both investors and their advisors according to a new study by the Natixis Center for Investor Insights.
It found that those individual investors who use model portfolios had almost double the confidence in the state of their finances now compared to non-model users (45% vs. 24%).
And 97% of model portfolio users said they trust their financial advisor, compared to 73% of those who are not invested in models.
“Investors are telling us that the most important facets of their relationship with an advisor are activities that define a more holistic approach and more personalized service,” said Dave Goodsell, Head of the Natixis Center for Investor Insights. “Model portfolios free up time for advisors to introduce clients to a broader set of services and demonstrate the value of advice beyond allocation.”
The survey found that the professional services most wanted by model users versus non-model users are as follows:
- Retirement income planning (62% vs. 43%)
- Financial planning (59% vs. 28%)
- Sustainable investments (50% vs. 23%)
- Private investment opportunities (38% vs. 15%)
- Tax-efficient investment strategies (41% vs. 25%)
Market volatility
Two thirds of fund selectors said that market volatility is driving interest in model portfolios and 77% said that model portfolios deliver a more consistent investment experience for clients across the firm, giving them greater choice (64%) and a lower-cost option (74%).
The study also found that 78% of investors who use models said market volatility is an investment opportunity compared to 47% of non-model clients and are half as likely to feel stressed about their finances (11% vs. 23%).
Of the poll participants who work with an advisor, around 50% have assets invested in model portfolios.
“The diversification and targeted risk/return attributes of model portfolios make a strong case across a broad investor base,” said Marina Gross, head of Natixis Investment Managers Solutions. “Models greatly streamline the investment process and arm financial advisors with institutional quality portfolio management accompanied by deeper insights and rationale to talk with clients about allocation changes, risk and portfolio performance.”
Evolving models
The report found that the advisor-built and in-house model portfolios currently dominate but third party solutions built by external asset managers are gaining ground.
At least half (51%) of U.S. wealth managers and other advisory firms plan to add to their third-party model offering in the next year, and 58% of fund selectors say their firm is finding a greater need to add specialty models that address specific client objectives.
“Model portfolios have evolved in such a way that it’s possible to add sleeves with specific attributes and to mix and match in-house and third-party models or core and specialty models,” added Marina Gross. “Financial advisors can customize portfolios to their liking depending on clients’ goals and risk tolerance, at scale and without compromising investment quality.”
The full report is available from Natixis Investment Managers.
