State Street study looks at why AUM in model portfolios is increasing

Advisors reported having an average of 39% of their current assets under management in model portfolios, up from 32% three years ago, according to Model Portfolios: Adaptive Solutions for Advisory Growth research conducted by State Street Global Advisors.

“Model portfolios have evolved into a powerful tool for advisors seeking to scale their practices efficiently while enhancing the quality of personalized, client-centered wealth management,” said Brie Williams, global head of Advisory Solutions and Wealth Intelligence at State Street Global Advisors. State Street Global Advisors is the asset-management business of State Street Corporation.

“By streamlining portfolio management," said Williams, "these solutions enable advisors to focus on delivering holistic financial planning and high-impact advice, positioning their practice for sustainable growth in an ever-changing market.”

Reasons for growth

Williams said that model portfolios are gaining traction as they reflect the evolving needs of financial advisors and their clients in offering some reasons for their growth. Advisors are balancing heightened client expectations for personalized service and outcomes with the operational demands of running scalable practices. “Model portfolios address this challenge by streamlining portfolio construction and management, enabling advisors to focus more on strategic planning and client engagement,” she said.

This growth is also supported by advancements in technology and the increasing use of cost-efficient products like ETFs, added Williams. These portfolios offer diversified, professionally managed solutions that simplify implementation while maintaining flexibility to align with specific client goals. By reducing the time spent on asset management, advisors can allocate more resources to fostering client relationships and delivering holistic financial planning.

“Ultimately, the rise of model portfolios is rooted in their ability to enhance advisor efficiency, meet complex client needs, and deliver value behind traditional returns – all while adapting to the shifting landscape of financial planning and wealth management”, Williams said.

How advisors use custom models

According to the survey, more than half of surveyed advisors (54%) utilize custom (self-built) models for clients, while 45% source models that are available on their home office/broker-dealer platform, and 53% source from third-party providers.

The top factors that advisors consider when selecting model-portfolio partners include commitment from providers (30%), performance (29%), and price (27%). Notably, 85% of advisors believe that tax personalization is a benefit of using models.

Investors’ top benefits

The research also shared what investors see as top benefits of having their assets in model portfolios. These include:

• My advisor can spend more time helping me make more intelligent financial planning decisions (89%).
• My advisor can focus on what really matters to me (86%).
• My advisor can be more flexible to my needs (85%).

Gaps between advisors and clients

In addition, the research uncovered a sizable perception gap between financial advisors and investors when it comes to understanding fees and being satisfied with value received.

While most advisors (87%) believe that their clients understand their fees, just 58% of clients said that they do. Similarly, 88% of advisors think clients are satisfied with the value for fees paid, while 63% of clients feel this way.

Enhancing the value of services

When asked what would improve the value of the services they receive from their advisor, the top three responses from clients were:

• Better returns (51%)
• Lower fees (46%)
• More proactive reporting (27%)

Satisfaction higher with model portfolios

Investors who know that their assets are in model portfolios are more likely to be satisfied with their financial advisor than investors who don’t know or who have no assets in model portfolios, the survey said.

Nearly all investors in model portfolios (95%) are satisfied with their advisor’s ability to earn their trust and confidence, compared to 79% of investors without assets in models.

Similarly, 93% of investors in models are satisfied with their advisor’s understanding of their financial goals, compared to 79% of investors without assets in models. Notably, 51% of advisors said that clients expect an element of customization/personalization.

Investors with assets in models are also more satisfied with the fees they pay for the value of services they receive, as 79% of model investors are satisfied with their fees compared to 56% of investors without models.

So, why is satisfaction with advisors higher among investors in model portfolios? “Model portfolios are redefining the client-advisor relationship by combining personalized strategies with professional portfolio oversight,” explained Williams. “Clients whose assets are in model portfolios consistently report higher satisfaction levels, citing benefits like enhanced transparency, effective issue resolution, and optimized portfolio performance.”

Among investors who are aware that their advisor uses model portfolios; the vast majority feel informed and engaged in the process, Williams said. For example, 95% said that their advisor walked them through the portfolio chosen for them, 95% agreed the model is aligned with their financial goals, and 92% believe it meets their investment objectives. Additionally, Williams said, 86% of clients feel actively involved in the investment-management process – a critical factor in building trust and satisfaction.

A 'collaborative approach'

“This collaborative approach ensures clients understand the value of the services they receive, making them more likely to feel their fees are justified,” Williams said.

Moreover, Williams added, model portfolios allow advisors to spend more time in delivering comprehensive financial planning. Nearly two-thirds of investors said that they prioritize holistic advice that addresses their broader financial priorities over portfolio construction itself. “By streamlining portfolio management, advisors can focus on scaling their practices, while maintaining a client-first approach,” Williams said.

Awareness has not increased

Despite investor satisfaction with model portfolios, awareness of these portfolios has not improved during the past five years, according to the survey. So, what is causing this lack of awareness, and what can be done to promote more awareness?

“It’s encouraging to see that 60% of investors express interest in better understanding the investment management process, even when their assets are in model portfolios,” said Williams. “An engaged client is an ideal client, particularly when they not only grasp their personal financial plan but also understand how their investments align with their goals. This level of engagement fosters trust, strengthens the advisor-client relationship, and enhances satisfaction with the advisory experience.”

However, despite the benefits of model portfolios, investor awareness has plateaued, Williams added. Currently, 57% of investors say they are familiar with the concept – a figure that has remained unchanged since 2019. This reflects a nuanced dynamic in which many advisors emphasize custom portfolios as part of their value proposition, while investors often evaluate value based on returns relative to fees.

“This creates a unique opportunity for advisors to reframe conversations around the broader value of financial advice,” Williams said. “By highlighting areas such as financial planning, risk management, tax management, and long-term goals – alongside portfolio management – advisors can demonstrate the holistic impact of their services, helping clients recognize value that goes beyond investment performance.”

“Our findings show that most investors are comfortable with their advisor utilizing model portfolios as part of the investment management process, provided they understand how these solutions align with their financial goals,” Williams added. “Model portfolios are not a one-size-fits-all solution, but when tailored to align with individual objectives, they provide a powerful tool that enhances scalability while reinforcing client outcomes.”

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