FAs Could Ease Use of Outsourced Portfolios Amid Volatility: Cerulli

By Alex Padalka October 20, 2020

Advisors may want more control over clients’ portfolios despite outsourcing the work in recent years to scale their businesses — and that may be misguided, according to a recent report.

The percentage of advisors who construct models or individual portfolios and make changes on a tailored, per-client approach has dropped 7% over the past five years, research firm Cerulli Associates says. That share has dropped by 20% among national and regional broker-dealers, and by 18% among RIAs, according to a recent report from Cerulli.

But the coronavirus pandemic may dampen the reliance on outsourced portfolio construction because advisors tend to want more control during times of market uncertainty, Cerulli says.

Around 29% of asset managers surveyed by Cerulli say advisors are seeking more discretion over customers’ accounts. And only 9% say that advisors are more willing to outsource portfolio construction a few months into the crisis. Around 62% say they’ve seen “no meaningful change in advisor discretion post-pandemic."

Cerulli has another explanation for the possible decline in use of outsourced portfolios.

“It’s easier for the advisor to make portfolio changes and show the client that they are doing something rather than having to explain why the home office or model provider is taking a ‘wait and see’ approach and that the advisor has limited ability to alter the portfolio in times of crisis,” Matt Belnap, senior analyst at Cerulli, says in a statement. 

Nonetheless, Belnap says the transition to third-party portfolio construction can benefit advisors.

“Advisors who can move beyond portfolio construction and security selection as their main value proposition can use this time to grow and scale their practice, more efficiently servicing clients they already have, and attracting new ones,” he says in the statement. 

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