Model Portfolio & SMA Strategists Showcase - Flipbook - Page 18
SMAs & MODEL PORTFOLIOS
manager signals a rebalance or a
fund substitution and that signal
doesn’t get executed in a specific
client’s account, because the advisor
missed a notification, or the TAMP’s
implementation queue backed up, or
the advisor simply didn’t get to it that
week, the account silently drifts from
the model it’s supposed to be tracking.
Nothing alerts the client. Nothing alerts
anyone, until the next review reveals a
portfolio that no longer resembles the
strategy it was sold as.
This is the trade-off that separates
model-only delivery from an SMA in
practical terms. An SMA manager’s
trading authority means execution
happens whether or not the advisor is
paying close attention that week. Modelonly delivery puts that responsibility
squarely on the advisor (or the TAMP
acting as their delegate), and it’s
a responsibility that scales badly.
Watching one client’s model drift is trivial.
Watching drift across a few hundred
client accounts, each potentially
following a different model, each
rebalancing on its own schedule, is
a genuine operational discipline, one
that a lot of practices underestimate
until they’ve been doing it for a couple
of years.
HOW MARKETPLACE
SCREENING ACTUALLY WORKS
Beyond browsing by asset class
BY THE NUMBERS
27% still say no
More than a quarter of advisors don’t use
model portfolios at all. The top reason
cited is a preference for customization,
followed by a perceived loss of control.
Notably, custom model assets have
grown nearly 50% in about 15 months,
suggesting the industry is answering this
exact objection in real time.
Why 27% of Advisors Still
Don’t Use Model Portfolios
Illustrative split based on described
rank-order of reasons cited
20%
45%
35%
Preference for customization
Perceived loss of control
Other reasons
Source: Morningstar Voice of the Advisor
Market Research Program
and risk level, a mature marketplace
platform typically lets an advisor filter
by more specific criteria worth knowing
about before assuming a search has
actually covered the field: expense
ratio ranges, minimum track record
length, Morningstar Medalist Rating
tier, tax-management features, ESG
or values-based screening availability,
and the specific underlying vehicle mix.
A screen built only around asset class
and risk tolerance will surface dozens
of superficially similar options. A screen
built around these more specific criteria
narrows the field to the handful actually
worth the deeper due-diligence work
covered later (p. 22).
It’s worth treating the screening step as
a skill rather than a formality. The quality
of what an advisor finds is directly a
function of how precisely they’ve told
the platform what to look for.
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WHEN TO
REACH
FOR THIS
Before adopting any marketplace model,
ask: How often does it rebalance,
and how will you know? What’s the
proprietary-fund concentration? Does
it offer any tax guidance, or is it strictly
buy-and-hold? Can it be modified if a
client’s situation doesn’t quite fit?
OPEN ARCHITECTURE, AND WHY
THE TERM DESERVES SOME
SKEPTICISM
Many marketplaces and TAMPs
advertise “open architecture,” the idea
that any qualified asset manager’s
models can be added to the platform,
with no proprietary constraint on what
an advisor can access. In the extreme
case, this is genuinely valuable. It
means an advisor isn’t limited to one
firm’s house views. In practice, true
open architecture is harder to deliver
than the marketing term implies,
because every asset manager added
to a platform still has to clear that
platform’s own due-diligence process,
described in the manager-vetting
discussion later in this guide (p. 22),
before their models become available.
A platform offering “open architecture”
with hundreds of underlying managers
has still made a curatorial choice about
which hundreds, and that curation
is itself worth understanding. It’s not
the same thing as unlimited access to
literally any strategy an advisor might
want. The practical question worth
asking a marketplace platform directly
is what’s the actual process and
timeline for adding a manager who isn’t
already on the platform, if an advisor
identifies one worth including.
WHAT TO ACTUALLY EVALUATE
IN A MARKETPLACE MODEL
Beyond the headline performance
