How to Navigate the Maze of Model Marketplaces

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For those advisors seeking to outsource their portfolio construction, the proliferation of model portfolios leaves them with an overwhelming challenge to properly analyze the thousands of choices. Indeed, the fate of those who fail to overcome that challenge will be reminiscent of that of Blockbuster Videos.

Remember your neighborhood Blockbuster Video store? In its glory days, it was an enjoyable marketplace where you could go to find your desired movies/videos (unless someone else had rented it first!).

But like many brick-and-mortars, video stores were phased out by forward-thinking technology alternatives (Netflix, Amazon Prime, Hulu, etc.) that made access to your favorite movies and TV shows easier than ever. However, this wasn’t an entirely smooth transition. Eventually streaming services completely disrupted the space, but it wasn’t the most seamless transition for consumers, especially those who weren’t the most technology-enabled. Standards needed to emerge, TV firmware and internet enablement needed to evolve, broadband speeds needed to increase and the content catalogs and user experience needed to adapt.

Disruption led to rapid adaptation, which drove massive adoption.

In the investment management industry, model marketplaces are following a similar path: disruption, adaptation and massive adoption. The technology is there, and advisors see the potential, but there are still roadblocks.

The biggest challenge is the overwhelming volume of available investment alternatives.