Fidelity Offers Advisors Help With Model Portfolios

Fidelity Investments is getting into the portfolio construction game for advisors, recently launching Fidelity Model Portfolios, a new service that provides advisors with access to professionally crafted investment portfolios. With the new service, advisor clients can access Fidelity Target Allocation Model Portfolios, which consist of five different asset mixes that align with different risk tolerances. The portfolios are a mix of active and passive mutual funds. Fidelity Investments has plans to include more model portfolios later in 2018.

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Advisors Looking for Way to Free Up Time

As fees compress, advisors are increasingly helping clients with their overall financial health rather than just their asset allocation. As a result, they’re turning to specialists for support for certain aspects of their business. This is the context for the launch of Fidelity Model Portfolios, said Matt Goulet, senior vice president of Fidelity Institutional Asset Management, in an interview. “This service will help advisors be more efficient and spend more time with clients,” he said.

Goulet pointed to a recent Cerulli Associates report that showed advisors are spending 40% of their time with management and administrative activities instead of talking to clients or prospecting for new ones. That same study found that 81% of advisors use a model to construct portfolios for their clients. Cerulli pegged the managed accounts market at $6 trillion with growth of 14.5% projected over the coming years.

“We’re making advisors’ life a little easier,” said Goulet, noting that Fidelity opted to launch first with target allocation model portfolios because that was the number one request from brokerages, individual firms and registered independent advisors. According to Goulet, model portfolios can also reduce divergence between outcomes for customers working with advisors by providing a “level of consistency” across the risk profiles. Fidelity Model Portfolios are available to advisors at broker-dealers, registered investment advisors, banks and insurance companies.

Brokerages See an Opportunity

While the Fidelity Model Portfolios constitute a new business for the Boston-based fund company, it has been offering insight to advisors via its Capital Markets Strategy team, which provides advice on portfolio construction and portfolio evaluations. “The model portfolio space is a natural extension of our existing portfolio construction capabilities,” said Goulet. “From insights to implementation, we offer a range of services that support advisors’ portfolio needs.”

The move on the part of Fidelity comes at a time when financial advisors are trying to find new ways to boost revenue as the money they make on fees continues to decline. With low-cost, passive investing all the rage, even in a more volatile stock market, advisors are tasked with providing more value-add services. Seeing an opportunity, the brokerages have been stepping up their game in terms of offering model portfolios. For example, TD Ameritrade announced the launch of the Model Market Center in January, saying at the time that registered investment advisors (RIAs) can choose from an array of third-party investment models in one location. The platform works with TD Ameritrade Holding Corporation’s (AMTD) trading and portfolio management technology, so clients can execute the model in the manner they want. As the third parties update their models, advisors are automatically alerted to the changes, noted TD Ameritrade.

TD Ameritrade Institutional said that the Model Market Center can save time dedicated to building models from scratch so that do-it-yourself advisors can spend more time on clients and financial planning. As for advisors that already use third-party platforms for portfolio construction, TD Ameritrade said that it can offer these services at a lower cost given there is no additional fee to access the models.

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