Advisors are Using Inefficient Model Portfolios

Despite the important role financial advisors play in the design of client portfolios, we know very little about how those portfolios are constructed. New research shows, however, that the model portfolios used by advisors suffer from a number of structural inefficiencies.

That research was motivated by the need to answer the following questions:

  • What are the general characteristics of advisor portfolios?
  • Which macroeconomic and style (such as size, value, momentum, quality and low volatility) factors do portfolios have exposure to?
  • Are there commonalities in the type and number of positions held in advisor portfolios?
  • How do advisor portfolios differ and along what dimensions?
  • Could the risk-return trade-offs of these portfolios be improved, especially in the context of hypothetical scenarios of adverse market conditions?