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Advisors today are being asked to do more than ever for their clients. Financial planning, investment management, and client service are all part of the required service package, yet each is essentially a full-time job. Investment management is potentially the key practice area where efficiency gains have the most potential to free up time while not diminishing the value being delivered to clients.

The growth and benefits of model-based advisory

One of the most transformational trends in wealth management today is the adoption of investment models by financial advisors. According to an Ignites study1, more than 53% of surveyed top-ranked advisors are utilizing models in some way in their practice. The use of model portfolios has grown rapidly in recent years and now accounts for ~$2.5 Trillion in assets, largely due to the following benefits for advisors and their clients, including:

Positive Client Outcomes

Model portfolios have
typically provided more
predictable results,
including significantly less
volatility compared to
advisor-managed portfolios.

Significant Time Savings

Advisors using models
save an average of
5 hours a week in
investment management
and trading activities.

Higher Asset Growth

Advisors who use
models have grown
their assets at twice
the rate of those not
utilizing models.

Added Business Value

Model usage creates
scalability and a streamlined
operating model for the
advisor’s practice, allowing
for a potential higher sale
multiple upon exit.

  • 40% of advisors believe model usage detracts from the individualized value they provide clients
  • The difficulty of transitioning taxable assets is a top barrier to model use for non-qualified accounts
  • 26% of advisors are concerned that models can’t meet the unique needs of their various clients, and only 4% who use models use pre-packaged models as they come
  • With as many as 10,000 models in the market, it can be a daunting task for advisors to research and select the right models for their clients

In summary, despite the many potential benefits of using models, we believe adoption is limited as many advisors are not willing to give up investment expertise as a part of their value proposition. In addition, most model platforms do not have key capabilities for model-selection, customization, and tax management.

Key ways to ‘own and operate’ model portfolios

Customize at scale

While 40% of advisors fear that model usage could detract from their value proposition, the vast majority of advisors
who actually use models are customizing them to some degree. The difference may be the perspective embraced
by the latter group – “control your models, don’t let them control you.”
Many advisors claim or desire to offer bespoke portfolios for
their clients, yet in reality, most advisor books of business
can be segmented by client types and size, with common
investment objectives and desired investor outcomes. Whether
you are using third-party models, customizing those models, or
building models from scratch, it is essential that the models tie
to these intended objectives and outcomes. Therefore, it is still
possible to provide differentiated solutions through a range of
models targeted to each client’s investment philosophy.
Advisors now have access to capabilities to personalize at scale by applying modular overlays such as tax
management and risk management and/or customization through security replacement and household level
allocation. This can enable an advisor to utilize a model-based approach across more of their business.

Advisors can use client segmentation to
create tiered offerings and curate a mix
of models utilizing:

  • Third-party or home office models
  • Models with modifications for advisor preferences and client-specific needs
  • Completely custom models

Co-sourcing: an innovative solution for the build vs buy dilemma

To capture the full benefits of a growing, model-based practice, advisors can leverage third-party technology and investment capabilities to outsource many functions of the investment process — including portfolio monitoring, tax management, and trading — while retaining control of the areas they believe are important to them – such as investment selection and model design. Advisors can now solve their buy vs build dilemma when choosing models by combining the best features of both. Intelligent automation through co-sourcing can offer:

Greater consistency in
monitoring, rebalancing
and tax-smart trading

analytics and proposals
highlighting the value of “your” models

Model maintenance,
customization, and
overlay features

Demonstrate where you are adding value

With the dramatic growth of ETFs and the rise of robo-advisors, clients can get a well-balanced portfolio that meets
their core portfolio objectives for 0.25-0.50% in annual fees. To justify their fees to clients, advisors must not only offer financial planning, but also advanced investment capabilities such as tax-smart-transition and tax management.
We believe advisors are only capturing some of the
potential benefit of using technology to deliver these
features unless they can demonstrate the value to
their clients. A model-based practice can now provide
advisor-branded investment models that can be
supported with automated, branded communications
and reporting to reinforce value across visual and
auditory mediums.

Examples of advisor-branded communications
offered through smart technology:
» Model benefits, such as estimated fees
or estimated taxes saved
» Progress toward portfolio tax transition
» Trade updates
» Commentaries

Adopting models to accelerate your business

Many top advisors have adopted models as a key component of their practice. Using technology and intelligent automation to deliver customization at scale, tax management, and communication of model benefits to clients enables advisors to increase their investment brand and grow their practice, while better meeting their client needs and desired outcomes.

Your Practice: Powered by 55ip

55ip offers a model adoption platform designed to help improve outcomes for advisors and their clients. By partnering with 55ip, advisors are empowered with a simple user experience and intelligent automation for model delivery including design, selection, customization and tax-smart transition and trading.

55ip seeks to solve the advisor’s dilemma: buy or build your investment models?

Important Information
55ip is the marketing name used by 55 Institutional Partners, LLC, an investment technology developer, and for investment advisory services provided by 55I, LLC, an SEC-registered investment adviser. Such registration does not imply a certain level of skill or training.
These materials are intended for Registered Investment Advisors only and describe various risk and tax management strategies that may not work as intended, in part because the strategies may be modified only on specified cycles. Risk management strategies cannot be counted on to provide protection to client portfolios. Even when using the strategy, portfolios
remain subject to multiple risks, including the risk of loss of the entire amount invested. The impact of a tax-loss harvesting strategy depends upon a variety of conditions, including the actual gains and losses incurred on holdings and future tax rates.
These services are available for an additional advisory fee.
Past performance does not guarantee or indicate future results and there can be no assurance that any return objectives will be met. No representation is made that any investor will, or is likely to, achieve the intended results. All investments involve risk, including loss of principal.

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