How Model Portfolios Work in the Real World: Advisors' Advice

A Model-Driven Approach

Jon Ulin, CEO of Ulin & Co. Wealth Management:

For the past two decades, our independent advisory firm has provided clients with a fee-based, model-driven approach to asset management with a fiduciary focus.

Our clients pay for and expect us to deliver management of their portfolios in addition to comprehensive planning, both not typically provided by advisors outsourcing management to robo-advisors, back-office wirehouse offerings or third-party managers.

Do you employ one family or series?

It is prudent to research, screen and utilize investments across different companies as there are over 10,000 different mutual funds, ETFs and index funds across a vast array of asset classes, sectors, styles, countries and factors.

In the active management space, it can be difficult to find companies where every manager in their provided line up meets or exceeds their benchmarks. … In the passive index and ETF space, different firms may offer variations of various benchmarks, sectors or styles that may include unique strategies such as smart-beta, low-vol, equally weighted and socially responsible funds that may additionally involve a combination of human or quant overlays.

Pros and cons of model portfolio use?

Strategic model portfolios provide a structure for asset allocation and diversification like building a foundation for a house based on each individual clients’ specific risk tolerances and financial goals to help minimize volatility and provide a smoother, more consistent ride over time.

It is a more pragmatic, efficient and scalable tactic for advisors to utilize model portfolios with active and passive fund strategies for long-term investors rather than taking the time or having the know-how to research and trade individual securities while attempting to create customized portfolios for each client.

Caveat emptor when investing on your own, or when partnering with an advisor utilizing robo-platforms, “back office” wirehouse model offerings or third-party model portfolio managers. Many of these programs have been incepted just over the past 5-10 years and may not have a long track record or really been tested through major crashes recessions like the dot-com or Great Recession crash. At the same time, many of these new programs may provide a better approach than doing it yourself or in some cases, a less experienced advisor.