NEW YORK, July 1, 2020 /PRNewswire/ -- A new report
from Broadridge Financial Solutions, Inc. (NYSE: BR), a global
Fintech leader, has revealed that there were $3 trillion USD in assets under management (AUM)
in model portfolios at the end of Q1 2020. The majority of assets
were in advisor-led model portfolios (53%), followed by home-office
model portfolios (30%) and third-party model portfolios (17%).
Derived from a proprietary algorithm developed by Broadridge, the
report found that model portfolio assets contracted 16% in Q1 2020
from a record high of $3.5 trillion
in Q4 2019 as a result of the selloff related to Covid-19.
The market environment has disrupted model portfolios' asset
mix, with equities tanking and bonds spiking in Q1 2020. Bond funds
have grown the fastest since 2018 at an 18% annual growth rate,
followed by mixed assets at 4%, while equity funds' growth streak
has halted. Bond funds gained a 5% share in model portfolios at the
expense of equity funds in Q1 2020, as the pandemic wiped out
nearly $180 billion of equity
assets.
ETFs Continue to Drive Model Portfolios Growth as Asset Mix
Shifts
Model portfolio popularity has been increasingly driven by ETFs,
which rose to 43% of assets from 36% in Q1 2018. By comparison,
ETFs comprise 30% of the retail intermediary marketplace.
Mutual fund-only model portfolios accounted for 42% of all model
portfolios in Q1 2020, while ETF-only model portfolios grew fastest
at 36%, representing one-third of all model portfolio types. Hybrid
strategies blending mutual funds and ETFs accounted for 25% of all
model portfolio strategies. Active mutual fund share held steady
for the quarter at 53%, despite having steadily eroded over the
past two years.
"The low-cost and tax-efficient nature of ETFs continues to be
particularly appealing as asset managers build model portfolios,"
said Andrew Guillette, Senior
Director of Americas Distribution Insights at Broadridge Financial
Solutions. "As a result of the market environment caused by
Covid-19 in the latter half of Q1 2020, we expect strategists at
centralized research groups, as well as advisors running their own
model portfolios, to rebalance their asset mix in the months
ahead."
The model portfolio industry became more concentrated in Q1
2020, with 64% of assets controlled by the top 10 asset managers,
up from 62% at the end of 2019. The industry's top 10 model
portfolios collectively represent $74
billion, or 7%, of the total $1.0
trillion invested in model portfolios directly tracked by
Broadridge, with home-office model portfolios dominating this
segment.
How Model Portfolios are Addressing Industry
Challenges
The popularity of model portfolios among younger advisors
underscores a broader industry shift to holistic financial
planning. According to separate survey research conducted by
Broadridge, current financial advisors under the age of 40 have
nearly 60% of their fee-based advisory assets in model portfolios.
In two years from now, those same respondents expect their
fee-based advisory assets to be 66% in model portfolios. Twenty-six
percent of respondents under 40 expect to have 100% of their
fee-based advisory assets in model portfolios within two years,
allowing for an increased focus on client service.
Similarly, 53% of advisors believe that in three years they will
be able to devote more time to growing and scaling a practice,
compared to 40% today.
Sixty-eight percent of financial advisors would like to allocate
more time to client acquisition, while 66% would like to spend more
time on client-facing activities.
Methodology
Broadridge's proprietary algorithm provides transparency on
model portfolio activity across $14
trillion of directly sourced mutual fund and ETF assets.
Sample dimensions tracked include model type (home-office,
third-party, advisor-led), investment style, active versus passive,
and mutual fund versus ETF. Analytics are available at the
industry, channel, distributor and city level.
The Broadridge survey research included within this press
release was conducted by 8 Acre Perspective to assess the world of
financial advice and guidance. A total of 300 financial advisors
across wire, regional, IBD and RIA channels completed the survey,
which was fielded from February 21 to March
1, 2020.
For further details on methodology, please contact a Broadridge
media representative.
About Broadridge
Broadridge Financial Solutions, Inc. (NYSE: BR), a $4 billion global Fintech leader, is a leading
provider of investor communications and technology-driven solutions
to banks, broker-dealers, asset and wealth managers and corporate
issuers. Broadridge's infrastructure underpins proxy voting
services for over 50% of public companies and mutual funds
globally, and processes on average more than $7 trillion in fixed income and equity securities
trades per day. Broadridge is part of the S&P 500® Index and
employs over 11,000 associates in 18 countries.
Media Contacts:
Matthew Luongo
Prosek Partners
+1 646-818-9279
mluongo@prosek.com
Linda Namias
Broadridge Financial Solutions
+1 631-254-7711
Linda.Namias@broadridge.com
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SOURCE Broadridge Financial Solutions, Inc.