As investor appetites for more complex asset classes increase and model portfolios evolve to offer more personalized solutions, clear messaging stands as a pivotal element for asset managers aiming to integrate effectively into advisors’ practices. This integration hinges not only on strategic collaboration but also on conveying ideas and solutions that resonate deeply with advisors and their clients.
Open Architecture for Flexibility
Open architecture models have transformed advisors’ investment strategies by allowing customization to help align with individual preferences, benchmarks, fee structures, and management styles. An open architecture approach can allow advisors to choose from an array of different asset classes and model providers to create a customized ‘blend’ for client preferences.
In short, “it can give you the best of the best available solutions for each client,” says Adam Hetts of Janus Henderson. Open architecture models give the model creator and the advisors the flexibility to curate a specialized model to help scale advisory businesses. One of the biggest advantages, says Hetts, is that an open architecture “helps scale the investment management process, but it still makes it personal by creating something that the advisors feel like they’ve designed and built.”
The flexibility can empower advisors to craft models that feel personal and tailored, fostering scalability in investment processes while maintaining the personalization that many clients prefer. Indeed, recent research from BlackRock and Institutional Investor highlights the importance of equipping advisors with both the investment products and messaging about investment strategies as they serve their clients.1 Nearly two-thirds of the 500 participants in the 2024 BlackRock/II study agree strongly with the statement, “I usually focus on holistic financial planning, budgeting, tax, and trusts/estates matters, rather than purely on investment management.” And more than 80% of study participants agree that “using model portfolios builds trust and strengthens relationships with clients.” This focus on higher order matters such as holistic planning and the importance of trusted relationships between advisors and clients is well supported by advisors’ broad use of model portfolios, largely because model portfolios can liberate advisors to focus on clients and their needs.
A complete model offering transcends investment tools, encompassing ongoing consultative support and portfolio analytics tailored to advisors’ needs. This continuous dialogue ensures advisors are equipped with insights to understand market dynamics and explain investment behaviors to clients, thereby strengthening the client-advisor relationship. Hetts says, “complete model offerings are an ongoing source of support for the advisor. It’s an ongoing, consultative and conversational acknowledgement of their current market view. So, in turn, the advisor feels comfortable with why their models act the way they do.”
This flexibility can allow advisors to expand their areas of specialization where they might not originally have had the ability to do so. Steve Deroian of John Hancock Investment Management says his advisors have been challenged throughout the years in delivering income-producing models to clients outside of simple equities but customized models “help advisors to find income in terms of fixed income or more thought-provoking areas like preferred stock that they might not have previously considered. Most advisors don’t have experience in every single market category of income-producing vehicles, but models can help make it possible.”
Portfolios are constantly exposed to a variety of risks, and as a result, it is often essential for model providers to empower advisors with the tools and resources needed to address these risks effectively with clients, says Rob Eckrote, director at BlackRock. “Clients value the reassurance that comes from knowing a thoughtful professional is steering the portfolio through potentially tumultuous periods,” says Eckrote. “One impactful way to build this confidence is through proactive transparency. Take a presidential election, for example: the outcome is binary, and either outcome brings its own set of implications. A model provider can deliver significant value by outlining how they intend to position portfolios in response to each potential outcome. By sharing insights on what the portfolio might look like under one administration versus another, advisors can offer their clients the peace of mind they need during uncertain times.”
Effective messaging is crucial in the advisor-client relationship. The use of models can streamline communication by providing readily available content and trade rationales, freeing advisors from creating every piece of material from scratch. This can save time and allow advisors to present comprehensive market views, balancing macro insights with individualized strategies.
Simplifying the Message
Despite the sophistication of models, the essence of client communication remains unchanged. Clients are likely to care more about reaching their financial destination than the intricacies of the journey. “I don’t believe the communication element of client-advisor relationships needs to be over-engineered. Clients care more about reaching their goals than they do about the vehicle that got them there, so it’s best to be plain spoken and not throw in a bunch of jargon,” says Jay Therrien of Invesco.
By adopting model portfolios, advisors can focus more on the client relationship, and as it turns out, clients seldom see or question the mechanisms of their use. In the 2024 BlackRock/II study, only 15% of respondents claimed their clients had active interest in the technical details and underlying assets in the model portfolios their advisors recommended. The majority of respondents also stated that when counseling clients, they tended to focus on holistic financial planning, budgeting tax optimization, and/or trust and estate matters, rather than purely on investment management.
Therrien adds that “I don’t know many of us that would go and tell clients ‘Hey, I have this wonderful portfolio solution that is going to provide a ton of alpha to our relationship.’ Overall, we are going to speak in a way that brings holistic financial advice, wellness, and ultimate long-term care to our clients and those they care about. The details are there if they want them, but in our experience it’s the relationship clients tend to care about.”
Models tend to assist in fostering these crucial relationships. By having model portfolios as a product, advisors are able to spend less time taking about individual stock trades and the messaging is clearer.
In conclusion, model portfolios simplify both the investment process and the messaging that clients seek. Clients tend to prioritize personalized communication and genuine relationships but are also increasingly interested in more complex asset classes and investment options. Such a balancing act can be aided through the use of technology via model portfolios to both streamline the investment process and provide important portfolio strategy information to clients.
1 See “Model Portfolios: A new generation of investment solutions for wealth managers and their clients,” from BlackRock and Institutional Investor (2024).
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