Advisors’ Third-Party Model Portfolios Near $1 Trillion

Morningstar reported assets in third-party model portfolios used by financial advisors reached $943 billion this year, more than triple the 2021 total. The figure covers portfolios offered by firms including BlackRock, Capital Group, Vanguard, Goldman Sachs and Morningstar.

Morningstar compiled the total from survey responses provided by 32 model-portfolio providers and asset-under-advisement figures disclosed by more than 50 additional providers in regulatory filings. The firm also reported $42.6 billion of net inflows to third-party model portfolios during the prior year.

A March survey of 2,000 advisors conducted by Morningstar identified the leading reasons for using third-party models: streamlining the investment process (40% of respondents), saving time (37%) and allowing advisors to focus on client relationships and planning (35%).

Research from Cerulli Associates found advisors who use externally built model portfolios spend about 10.6% of their work hours on investment management, compared with roughly 25% for advisors who construct portfolios internally.

Exchange-traded funds remain the largest component of model-portfolio allocations, averaging 55.4% this year. Mutual funds account for about 34% of allocations on average, and individual stocks about 8.2%.

Providers are adding private-market investments to more model suites. Of 29 third-party providers polled by Morningstar, 20 reported they already include private equity or private credit or plan to do so, eight said they do not plan to, and one said the option is under consideration.

Private assets generally have lower liquidity and can be harder to value than public securities. Those characteristics affect transparency and risk for model portfolios that include private investments.

Regulatory filings and provider disclosures indicate the model-portfolio channel now represents a material share of assets overseen by advisors and their custodial partners, driven by greater distribution from large asset managers and advisor demand for ready-made, diversified portfolios.