Marketplace Models in Wealth Management | HCL Technologies

Marketplace Models in Wealth Management

Marketplace Models in Wealth Management
May 06, 2020


The wealth management industry is constantly evolving with new models for better strategies to increase AUM and revenues. While robo-advisory has been around for a few years, marketplace models are emerging as a hybrid business model offering a combination of digital and human engagement to focus on advisor efficiency and cost management. A marketplace model in the wealth management area is a centralized platform, where financial advisors can select third party investment models. The advisor, however, retains control of the allocation, trade implementation, and rebalancing. The portfolio models are offered by leading asset management firms. It can be looked at as a distribution platform that allows advisors to quickly and efficiently research third-party investment models from multiple managers and personalize strategies to fit their clients' needs.

Evolution of the Marketplace Model

Started in the early 80s, the Turnkey Asset Management Platform (TAMP) has been a popular solution for financial advisors who want to provide comprehensive wealth management to clients. The advisor focusses more on financial planning than on selection of the investment management processes and its implementation. This got facilitated due to the reduction in transaction costs and increased availability of portfolio management tools, plus back office activities such as automated alerts, asset tracking and reporting, and other dashboard features. The service might also include supplying proposals, wealth management tools, compliance services, investment policy statements, and risk analysis.

Market place model help advisors focus more on client building and retention strategies, plus offer lower cost and also retain discretion. Read More #marketplacemodel #wealthmanagement #capitalmarketservices @HCLFS

However, the rise of robo-advisory offerings has led the investors shift from the TAMP model, making TAMP’s back-office support less relevant in today’s advanced technology and tools age. While the TAMP model is still preferred by the clients from the baby boomers and Gen X segments, the millennial generation, with such a huge exposure to technology, prefers the robo-advisory channel. Moreover, the difference in fees/charges is huge. In recent times though, the growth of AUM for the robo advisors has been a challenge, due to increased competition from other fintech providers, similar offerings from the bigger firms, and in distribution and client acquisition areas. In an era of hybrid wealth management models, the marketplace model is evolving, sort of an in-between the TAMP and the completely self-directed Robo channel. A marketplace model typically offers portfolios of ETFs, mutual funds, or individual equities. Marketplace platforms offer advisors and WM firms the access to latest new technologies and help create their own managed account programs. They help advisors focus more on client building and retention strategies, offer lower cost, and retain discretion. Even firms having their in-house research and portfolio management capabilities can consider marketplace models, to offer blended portfolio management models. Added advantage is client retention by offering increased customizations in portfolio management.   

Key Platforms in the Marketplace Models

Morningstar’s Model Marketplace platform is now available for advisors who are already on the Morningstar Office Cloud. Currently 13 asset managers’ models are available including American Funds, BlackRock and Vanguard. The other asset management firms that have signed on include Fidelity, Franklin Templeton, Invesco, J.P. Morgan Asset Management, Northern Trust Asset, Management, Oppenheimer Funds, Russell Investments, and PIMCO. Morningstar also offers TRX (Total Rebalance Expert) which consolidates the entire workflow by automating the management, trade execution, and rebalancing of client portfolios. 

TD Ameritrade’s Model Market Center offers around 35 third party asset managers with more than 300 models consisting of mutual funds, securities, and  ETFs. WM advisors can select from a broad range of investment models, many with zero fees, from third-party investment managers like JP Morgan, BlackRock, Invesco, Northern Trust etc. The platform leverages iRebal® on Veo®, so advisors can access models and rebalance in one, central location. iRebal is the web-based rules-based re-balancing platform with tax considerations. Veo offers trading functionalities and account management. It also uses FinMason Investment Analytics for product development and in-depth analytics.

Riskalyze offers investment management policy statements, risk assessments, retirement maps, individual security and detailed portfolio statistics, custodian account, along with their version of Model Market Place and partner store offering of  some of the top research and fund managers such as BlackRock, Franklin Templeton, Fidelity, PIMCO, American Funds etc.

Envestnet, while being focused on the TAMP market, also offers APM (Advisor as Portfolio Manager) program wherein advisors can choose from existing models, along with a range of investment management, rebalancing and liquidity management, alerts, performance reporting, and billing.

As various players converge to drive continued growth in Marketplace Model portfolios, each of them will have to continuously monitor the trends and tweak their offerings accordingly. In the meanwhile, technology giants such as Google or Amazon might look at utilizing the Marketplace Model, if they want to foray into wealth management.  From the technology side, they are way ahead on AI, data analytics, integrations and, digital propositions and are tried and trusted by millennials as well as the the older generations.