The ways advisors construct portfolios is evolving in response to many factors including those related to the financial markets, the overall wealth management industry, and the consumer marketplace. Advisors have ready access to new products, new vehicles, new strategies, and new information that impacts how they make investment decisions and build effective portfolios for investors. It is with this context that Practical Perspectives, a leading consulting and research firm, examines financial advisors and how the ways they construct portfolios and their need for relevant support is evolving. This new 97-page report builds on prior research to provide a detailed, data-driven examination of key trends in portfolio construction from the singular perspective of advisors.
Our intent in this report is to provides a research driven view of advisor behaviors, attitudes, and preferences in portfolio construction. The report examines several aspects of portfolio construction including how advisors make decisions, the sources they rely on, the use of actively managed and passively managed solutions, the opportunities for Smart Beta strategies, the ongoing implementation of liquid alternatives in portfolios, and advisors needs for enhanced support and assistance in managing portfolios. The report is based on proprietary research completed in December 2016 with over 625 advisors including RIAs, Independent broker-dealers, and other national and regional broker-dealer firms.
Key Topic Areas: Advisors and Key Trends in Portfolio Construction
Trends in Portfolio Construction
Changing Nature of Active and Passive Management
Advisors Needs for Additional Support with Portfolio Construction
To Order the Report
The study is available in PDF format for the subscription price of $5,250. To order the complete 97 page, 72 exhibit report or for more information, please contact:
Howard Schneider, 978-590-7290 or email howard.schneider@practicalperspectives.com
Introduction and Methodology“Trends in How Advisors Construct Portfolios – Insights and Opportunities 2017” provides a deep dive into advisor usage, attitudes, and preferences towards major trends in portfolio construction. The report examines several areas related to how advisors build portfolios including their decision-making process, the vehicles they tend to rely on, the sources which influence their decisions, the way usage of active vs. passive management is evolving, and the emergence of new approaches such as Smart Beta options and liquid alternatives. In addition, this report looks at the support advisors believe is most important related to portfolio construction and what additional capabilities are of greatest interest.
Our analysis is intended to answer key questions enabling product providers and distributors to make informed product line decisions. It is also focused on helping asset managers and platforms develop and execute more targeted and effective sales, communications, and servicing programs that address the emerging trends in portfolio construction among financial intermediaries.
Among the key questions addressed in this report are:
This report is based on input from a broad cross-section of advisors across key channels including Full Service (Wirehouse, Regional, and National broker-dealers), Independent broker-dealers, and RIAs. In November/December 2016, advisors were asked to participate in an on-line survey regarding portfolio construction. Advisors were randomly solicited across all delivery channels. Input from more than 625 advisors forms the basis for the analysis in this report. Findings are presented for the overall sample as well as broken out by key distribution channels. In addition, analysis is offered by additional segments of advisors that illustrate meaningful differences in the ways portfolios are built to meet client needs.
Table of Contents
Section I: Executive Summary
Section II: Introduction and Methodology
Section III: How Advisors Approach Portfolio Construction
A. To what extent is investment management a primary focus for advisors and how responsible are they for portfolio construction decisions?
B. Which sources have the most significant influence on how advisors construct portfolios?
C. How do advisors use model portfolios to guide investment decisions?
D. How important are style boxes to how advisors build portfolios?
E. How widespread is the use of fee-based solutions relative to use of brokerage platforms and which types of advisory solutions are most often used?
F. Which investment vehicles do advisors use most heavily to construct portfolios and how is use of these solutions expected to change in the coming year?
G. What impact do advisors expect the impending DOL ruling to have on key aspects of portfolio construction?
Section IV: Advisors Embrace of Active and Passive Investing
A. How oriented are advisors to using active and passive investments in constructing portfolios?
B. How is the use of active and passive investments been changing in the past year and how do advisors anticipate it will evolve in the coming year?
C. Which types of advisors are more likely to use active and passive management?
D. How broadly do advisors use passively managed solutions and is use of these investments a short-term tactic or long-term strategy?
E. For which equity categories do advisors prefer to use passive versus active management?
F. For which fixed income categories do advisors prefer to use passive versus active management?
Section V: Advisors and Smart Beta Solutions
A. How experienced and familiar are advisors with Smart Beta solutions?
B. How is use of Smart Beta solutions expected to change in the coming year?
C. Do advisors perceive Smart Beta as active or passive management?
D. What types of Smart Beta solutions are of most interest to advisors?
Section VI: Advisors and Use of Liquid Alternatives
A. How reliant are advisors on liquid alternatives and how widespread is their use in constructing portfolios?
B. How satisfied are advisors with the performance of liquid alternatives?
C. Which liquid alternative strategies do advisors use most often and how is use expected to change in the coming year?
Section VII: Needs and Support for Portfolio Construction
A. What forms of support from product providers related to portfolio construction are most important to advisors?
B. To what extent do advisors need support for key portfolio construction activities?
C. In their own words, what are advisors most significant need regarding additional support for portfolio construction?
D. Which types of support specific to using passively managed investments are of most interest to advisors?
Section VIII: Profile and Characteristics of Advisors
Section IX: Implications and Outlook
List of Exhibits
Exhibit 1: Advisors Focus on Investment Management
Exhibit 2: Advisors Focus on Investment Management by Channel
Exhibit 3: How Advisors Typically Make Investment Decisions
Exhibit 4: How Advisors Typically Make Investment Decisions by Channel
Exhibit 5: Sources Influencing Advisors Investment Decisions
Exhibit 6: Sources with Significant Influence on Advisors Investment Decisions by Channel
Exhibit 7: Sources with No Influence on Advisors Investment Decisions by Channel
Exhibit 8: Extent Advisors Rely on Model Portfolios in Managing Investments
Exhibit 9: Extent Advisors Rely Heavily on Model Portfolios in Managing Investments by Channel
Exhibit 10: Extent Advisors Do Not Rely on Model Portfolios in Managing Investments by Channel
Exhibit 11: Use of Style Boxes vs. Unconstrained Approach
Exhibit 12: Use of Style Boxes vs. Unconstrained Approach by Channel
Exhibit 13: Reliance on Fee-Based vs. Brokerage Platforms
Exhibit 14: Reliance on Fee-Based Platforms by Channel
Exhibit 15: Reliance on Brokerage Platforms by Channel
Exhibit 16: Share of Assets Managed in Fee-Based Solutions
Exhibit 17: Share of Assets Managed in Fee-Based Solutions by Channel
Exhibit 18: Type of Fee-Based Solution Used
Exhibit 19: Type of Fee-Based Solution Used by Channel
Exhibit 20: Use of Investment Vehicles in Constructing Portfolios
Exhibit 21: Use of Investment Vehicles in Constructing Portfolios – Full Service Advisors
Exhibit 22: Use of Investment Vehicles in Constructing Portfolios – Independent Advisors
Exhibit 23: Use of Investment Vehicles in Constructing Portfolios - RIAs
Exhibit 24: Expected Change in use of Investment Vehicles in Constructing Portfolios
Exhibit 25: Expected Increase in Use of Investment Vehicles in Constructing Portfolios by Channel
Exhibit 26: Expected Impact of DOL Ruling on Aspects of Portfolio Construction
Exhibit 27: Expected Increase from DOL Ruling on Aspects of Portfolio Construction by Channel
Exhibit 28: Expected Decrease from DOL Ruling on Aspects of Portfolio Construction by Channel
Exhibit 29: Advisors Use of Actively Managed vs. Passively Managed Investments
Exhibit 30: Advisors Use of Actively Managed vs. Passively Managed Investments by Channel
Exhibit 31: Major Reasons Advisors Do Not Use Passively Managed Investments
Exhibit 32: Change in Relative Use of Active and Passive Investments in Past Year
Exhibit 33: Change in Relative Use of Active and Passive Investments in Past Year by Channel
Exhibit 34: Expected Change in Relative Use of Active and Passive Investments in Next Year
Exhibit 35: Expected Change in Relative Use of Active and Passive Investments in Next Year by Channel
Exhibit 36: Likelihood to Begin Using Passively Managed Investments in Next 12 Months Among Non-Users..................
Exhibit 37: Breadth in Use of Passive Solutions
Exhibit 38: Breadth in Use of Passive Solutions by Channel
Exhibit 39: Using Passive Investments as a Tactical or Strategic Decision
Exhibit 40: Using Passive Investments as a Tactical or Strategic Decision by Channel
Exhibit 41: Preference for Active vs. Passive Management in Key Equity Categories
Exhibit 42: Preference for Active vs. Passive Management in Key Equity Categories – Full Service
Exhibit 43: Preference for Active vs. Passive Management in Key Equity Categories – Independent Advisors
Exhibit 44: Preference for Active vs. Passive Management in Key Equity Categories - RIAs
Exhibit 45: Preference for Active vs. Passive Management in Key Fixed Income Categories
Exhibit 46: Preference for Active vs. Passive Management in Key Fixed Income Categories – Full Service
Exhibit 47: Preference for Active vs. Passive Management in Key Fixed Income Categories – Independent Advisors
Exhibit 48: Preference for Active vs. Passive Management in Key Fixed Income Categories - RIAs
Exhibit 49: Familiarity and Experience in Using Smart Beta Solutions
Exhibit 50: Familiarity and Experience in Using Smart Beta Solutions by Channel
Exhibit 51: Expected Change in Use of Smart Beta Solutions in Next 12 Months
Exhibit 52: Expected Change in Use of Smart Beta Solutions in Next 12 Months by Channel
Exhibit 53: Perceptions of Smart Beta – Active or Passive Management
Exhibit 54: Perceptions of Smart Beta by Channel – Active or Passive Management
Exhibit 55: Advisor Interest in Smart Beta Approaches
Exhibit 56: Advisor Interest in Smart Beta Approaches by Channel
Exhibit 57: Percent of Total Assets Managed in Liquid Alternatives
Exhibit 58: Percent of Total Assets Managed in Liquid Alternatives by Channel
Exhibit 59: Use of Liquid Alternatives Among Clients
Exhibit 60: Use of Liquid Alternatives Among Clients by Channel
Exhibit 61: Satisfaction with Performance of Liquid Alternatives
Exhibit 62: Satisfaction with Performance of Liquid Alternatives by Channel
Exhibit 63: Use and Expected Change in Relying on Liquid Alternative Strategies
Exhibit 64: Use of Liquid Alternative Strategies by Channel
Exhibit 65: Expected Increase in Use of Liquid Alternative Strategies by Channel
Exhibit 66: Support from Product Providers Most Important to Advisors for Portfolio Construction
Exhibit 67: Support from Product Providers Most Important to Advisors for Portfolio Construction by Channel
Exhibit 68: Interest in Support for Key Portfolio Construction Activities
Exhibit 69: Interest in Support for Key Portfolio Construction Activities by Channel
Exhibit 70: Advisor Interest in Support for Passively Managed Investments
Exhibit 71: Significant Interest in Support for Passively Managed Investments by Channel
Exhibit 72: Profile of Respondents by Key Characteristics
Our intent in this report is to provides a research driven view of advisor behaviors, attitudes, and preferences in portfolio construction. The report examines several aspects of portfolio construction including how advisors make decisions, the sources they rely on, the use of actively managed and passively managed solutions, the opportunities for Smart Beta strategies, the ongoing implementation of liquid alternatives in portfolios, and advisors needs for enhanced support and assistance in managing portfolios. The report is based on proprietary research completed in December 2016 with over 625 advisors including RIAs, Independent broker-dealers, and other national and regional broker-dealer firms.
Key Topic Areas: Advisors and Key Trends in Portfolio Construction
Trends in Portfolio Construction
- Which key sources influence how advisors build portfolios?
- What products do advisors rely on for portfolio construction and how is that expected to change going forward?
- How widespread is advisor use of fee-based and brokerage platforms and which platforms are used most often?
- What impacts on portfolio construction are expected from the new DOL rules if implemented?
- How are advisors using new capabilities such as Smart Beta and liquid alternatives and how is this likely to change?
- How does portfolio construction differ across channels including RIAs, Independent advisors, and Full Service advisors?
Changing Nature of Active and Passive Management
- How is use of active vs. passive management strategies changing?
- Which types of advisors are most likely to favor active and passive management?
- For which equity and fixed income asset classes do advisors prefer active vs. passive management?
- How broad is use of passive management and is it a strategic or tactical decision for advisors?
- How is use of active vs. passive management by advisors expected to change going forward?
Advisors Needs for Additional Support with Portfolio Construction
- What types of additional support for portfolio construction do advisors want from product providers and platforms?
- What aspects of support for passive management are of most interest to advisors?
- Which specific functionality for portfolio construction is most valuable to advisors?
To Order the Report
The study is available in PDF format for the subscription price of $5,250. To order the complete 97 page, 72 exhibit report or for more information, please contact:
Howard Schneider, 978-590-7290 or email howard.schneider@practicalperspectives.com
Introduction and Methodology“Trends in How Advisors Construct Portfolios – Insights and Opportunities 2017” provides a deep dive into advisor usage, attitudes, and preferences towards major trends in portfolio construction. The report examines several areas related to how advisors build portfolios including their decision-making process, the vehicles they tend to rely on, the sources which influence their decisions, the way usage of active vs. passive management is evolving, and the emergence of new approaches such as Smart Beta options and liquid alternatives. In addition, this report looks at the support advisors believe is most important related to portfolio construction and what additional capabilities are of greatest interest.
Our analysis is intended to answer key questions enabling product providers and distributors to make informed product line decisions. It is also focused on helping asset managers and platforms develop and execute more targeted and effective sales, communications, and servicing programs that address the emerging trends in portfolio construction among financial intermediaries.
Among the key questions addressed in this report are:
- How hands-on are advisors in making investment decisions?
- What sources influence how advisors make investment decisions?
- How do advisors use model portfolios to impact investment decisions?
- How reliant are advisors on style boxes to drive investment decisions?
- Which investment vehicles do advisors use most typically to construct portfolios?
- To what extent do advisors use fee-based solutions relative to brokerage platforms and which types of advisory solutions are most typically used?
- How do advisors differ in their use of active versus passively managed investments?
- How is advisor usage of actively-managed versus passively-managed solutions changing?
- How are advisors employing passively managed solutions relative to actively managed investments?
- For which investment categories do advisors prefer to use passively managed solutions relative to actively managed solutions?
- How is advisor usage of different ways to access passive and active management likely to change in the next 12 months?
- How familiar and experienced are advisors with Smart Beta solutions?
- Do advisors perceive Smart Beta as active or passive management?
- What approach to Smart Beta is of most interest to advisors?
- How widespread is advisors use of liquid alternatives within portfolios?
- How satisfied are advisors with the performance of liquid alternatives?
- Which specific liquid alternative strategies are advisors most likely to use?
- How is advisor usage of liquid alternatives likely to change going forward?
- What forms of support from product providers are most important to how advisors build portfolios?
- What are advisors most significant need regarding additional support for portfolio construction?
This report is based on input from a broad cross-section of advisors across key channels including Full Service (Wirehouse, Regional, and National broker-dealers), Independent broker-dealers, and RIAs. In November/December 2016, advisors were asked to participate in an on-line survey regarding portfolio construction. Advisors were randomly solicited across all delivery channels. Input from more than 625 advisors forms the basis for the analysis in this report. Findings are presented for the overall sample as well as broken out by key distribution channels. In addition, analysis is offered by additional segments of advisors that illustrate meaningful differences in the ways portfolios are built to meet client needs.
Table of Contents
Section I: Executive Summary
Section II: Introduction and Methodology
Section III: How Advisors Approach Portfolio Construction
A. To what extent is investment management a primary focus for advisors and how responsible are they for portfolio construction decisions?
B. Which sources have the most significant influence on how advisors construct portfolios?
C. How do advisors use model portfolios to guide investment decisions?
D. How important are style boxes to how advisors build portfolios?
E. How widespread is the use of fee-based solutions relative to use of brokerage platforms and which types of advisory solutions are most often used?
F. Which investment vehicles do advisors use most heavily to construct portfolios and how is use of these solutions expected to change in the coming year?
G. What impact do advisors expect the impending DOL ruling to have on key aspects of portfolio construction?
Section IV: Advisors Embrace of Active and Passive Investing
A. How oriented are advisors to using active and passive investments in constructing portfolios?
B. How is the use of active and passive investments been changing in the past year and how do advisors anticipate it will evolve in the coming year?
C. Which types of advisors are more likely to use active and passive management?
D. How broadly do advisors use passively managed solutions and is use of these investments a short-term tactic or long-term strategy?
E. For which equity categories do advisors prefer to use passive versus active management?
F. For which fixed income categories do advisors prefer to use passive versus active management?
Section V: Advisors and Smart Beta Solutions
A. How experienced and familiar are advisors with Smart Beta solutions?
B. How is use of Smart Beta solutions expected to change in the coming year?
C. Do advisors perceive Smart Beta as active or passive management?
D. What types of Smart Beta solutions are of most interest to advisors?
Section VI: Advisors and Use of Liquid Alternatives
A. How reliant are advisors on liquid alternatives and how widespread is their use in constructing portfolios?
B. How satisfied are advisors with the performance of liquid alternatives?
C. Which liquid alternative strategies do advisors use most often and how is use expected to change in the coming year?
Section VII: Needs and Support for Portfolio Construction
A. What forms of support from product providers related to portfolio construction are most important to advisors?
B. To what extent do advisors need support for key portfolio construction activities?
C. In their own words, what are advisors most significant need regarding additional support for portfolio construction?
D. Which types of support specific to using passively managed investments are of most interest to advisors?
Section VIII: Profile and Characteristics of Advisors
Section IX: Implications and Outlook
List of Exhibits
Exhibit 1: Advisors Focus on Investment Management
Exhibit 2: Advisors Focus on Investment Management by Channel
Exhibit 3: How Advisors Typically Make Investment Decisions
Exhibit 4: How Advisors Typically Make Investment Decisions by Channel
Exhibit 5: Sources Influencing Advisors Investment Decisions
Exhibit 6: Sources with Significant Influence on Advisors Investment Decisions by Channel
Exhibit 7: Sources with No Influence on Advisors Investment Decisions by Channel
Exhibit 8: Extent Advisors Rely on Model Portfolios in Managing Investments
Exhibit 9: Extent Advisors Rely Heavily on Model Portfolios in Managing Investments by Channel
Exhibit 10: Extent Advisors Do Not Rely on Model Portfolios in Managing Investments by Channel
Exhibit 11: Use of Style Boxes vs. Unconstrained Approach
Exhibit 12: Use of Style Boxes vs. Unconstrained Approach by Channel
Exhibit 13: Reliance on Fee-Based vs. Brokerage Platforms
Exhibit 14: Reliance on Fee-Based Platforms by Channel
Exhibit 15: Reliance on Brokerage Platforms by Channel
Exhibit 16: Share of Assets Managed in Fee-Based Solutions
Exhibit 17: Share of Assets Managed in Fee-Based Solutions by Channel
Exhibit 18: Type of Fee-Based Solution Used
Exhibit 19: Type of Fee-Based Solution Used by Channel
Exhibit 20: Use of Investment Vehicles in Constructing Portfolios
Exhibit 21: Use of Investment Vehicles in Constructing Portfolios – Full Service Advisors
Exhibit 22: Use of Investment Vehicles in Constructing Portfolios – Independent Advisors
Exhibit 23: Use of Investment Vehicles in Constructing Portfolios - RIAs
Exhibit 24: Expected Change in use of Investment Vehicles in Constructing Portfolios
Exhibit 25: Expected Increase in Use of Investment Vehicles in Constructing Portfolios by Channel
Exhibit 26: Expected Impact of DOL Ruling on Aspects of Portfolio Construction
Exhibit 27: Expected Increase from DOL Ruling on Aspects of Portfolio Construction by Channel
Exhibit 28: Expected Decrease from DOL Ruling on Aspects of Portfolio Construction by Channel
Exhibit 29: Advisors Use of Actively Managed vs. Passively Managed Investments
Exhibit 30: Advisors Use of Actively Managed vs. Passively Managed Investments by Channel
Exhibit 31: Major Reasons Advisors Do Not Use Passively Managed Investments
Exhibit 32: Change in Relative Use of Active and Passive Investments in Past Year
Exhibit 33: Change in Relative Use of Active and Passive Investments in Past Year by Channel
Exhibit 34: Expected Change in Relative Use of Active and Passive Investments in Next Year
Exhibit 35: Expected Change in Relative Use of Active and Passive Investments in Next Year by Channel
Exhibit 36: Likelihood to Begin Using Passively Managed Investments in Next 12 Months Among Non-Users..................
Exhibit 37: Breadth in Use of Passive Solutions
Exhibit 38: Breadth in Use of Passive Solutions by Channel
Exhibit 39: Using Passive Investments as a Tactical or Strategic Decision
Exhibit 40: Using Passive Investments as a Tactical or Strategic Decision by Channel
Exhibit 41: Preference for Active vs. Passive Management in Key Equity Categories
Exhibit 42: Preference for Active vs. Passive Management in Key Equity Categories – Full Service
Exhibit 43: Preference for Active vs. Passive Management in Key Equity Categories – Independent Advisors
Exhibit 44: Preference for Active vs. Passive Management in Key Equity Categories - RIAs
Exhibit 45: Preference for Active vs. Passive Management in Key Fixed Income Categories
Exhibit 46: Preference for Active vs. Passive Management in Key Fixed Income Categories – Full Service
Exhibit 47: Preference for Active vs. Passive Management in Key Fixed Income Categories – Independent Advisors
Exhibit 48: Preference for Active vs. Passive Management in Key Fixed Income Categories - RIAs
Exhibit 49: Familiarity and Experience in Using Smart Beta Solutions
Exhibit 50: Familiarity and Experience in Using Smart Beta Solutions by Channel
Exhibit 51: Expected Change in Use of Smart Beta Solutions in Next 12 Months
Exhibit 52: Expected Change in Use of Smart Beta Solutions in Next 12 Months by Channel
Exhibit 53: Perceptions of Smart Beta – Active or Passive Management
Exhibit 54: Perceptions of Smart Beta by Channel – Active or Passive Management
Exhibit 55: Advisor Interest in Smart Beta Approaches
Exhibit 56: Advisor Interest in Smart Beta Approaches by Channel
Exhibit 57: Percent of Total Assets Managed in Liquid Alternatives
Exhibit 58: Percent of Total Assets Managed in Liquid Alternatives by Channel
Exhibit 59: Use of Liquid Alternatives Among Clients
Exhibit 60: Use of Liquid Alternatives Among Clients by Channel
Exhibit 61: Satisfaction with Performance of Liquid Alternatives
Exhibit 62: Satisfaction with Performance of Liquid Alternatives by Channel
Exhibit 63: Use and Expected Change in Relying on Liquid Alternative Strategies
Exhibit 64: Use of Liquid Alternative Strategies by Channel
Exhibit 65: Expected Increase in Use of Liquid Alternative Strategies by Channel
Exhibit 66: Support from Product Providers Most Important to Advisors for Portfolio Construction
Exhibit 67: Support from Product Providers Most Important to Advisors for Portfolio Construction by Channel
Exhibit 68: Interest in Support for Key Portfolio Construction Activities
Exhibit 69: Interest in Support for Key Portfolio Construction Activities by Channel
Exhibit 70: Advisor Interest in Support for Passively Managed Investments
Exhibit 71: Significant Interest in Support for Passively Managed Investments by Channel
Exhibit 72: Profile of Respondents by Key Characteristics
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