How to use and choose model portfolios
The number of model portfolios available across the industry has surged over the last few years. Learn how to implement and select models so that you can grow your practice, streamline your investment process, and focus more time on your clients.
Learn why models are more popular than ever in The Case for Model Portfolios.
Watch and learn how to get the most out of models
Choosing the right model is only the first step. Implementation matters just as much. Our video walks through the various ways you can use models to achieve your clients’ objectives.
Model portfolios are surging in popularity as more financial professionals use them to help streamline their investment process and achieve more consistent outcomes.
But how can you make the best use of them for your clients?
Here are 5 ways to use model portfolios to help your clients meet their goals and objectives.
You can get a complete, diversified model portfolio as an all-in-one solution with a fully outsourced investment management process. This approach is what many people think of first when it comes to model portfolios.
There are a range of risk-based models available designed to target different risk profiles and investment objectives.
You can also build a hybrid or blend portfolio by combining active and passive models into a single, all-in-one solution.
With this "model of models" approach you can take advantage of both types of strategies at the same time and potentially lower cost. However, a single model that is explicitly hybrid in nature, holding both active and passive underlying strategies, may be a more efficient approach in some cases.
A third option is to use more than one model for your clients.
Combining models allows you to take advantage of their different benefits and offers more customization as the financial professional controls the strategic asset allocation. Keep in mind, asset class exposure choices can have a significant impact on performance.
You can select models by asset class and even choose models from different providers.
You can implement a model portfolio that targets a specific investment objective, such as income generation or capital preservation, to help your clients reach their goals.
Distinct from models focused on a certain asset mix, these model portfolios are designed to support specific desired outcomes.
And lastly, you may just be looking to put the finishing touches on a client’s portfolio and you don’t need a full, all-in-one solution.
A more focused model can fill a gap in your client’s portfolio or give them greater diversification, like adding international equity to complete a portfolio focused on U.S.-based investments.
These are just a few of the ways you can use models to better serve your clients. Visit troweprice.com/advisors to access the full whitepaper or view our model portfolios.
There are more options than ever, but not all model portfolios are created equal
In Morningstar’s U.S. Model Allocation 50%-70% Equity category, return dispersion was 29% over the last three years—and widened as more models launched.
models launched since 20181
model portfolios in Morningstar’s database1
It’s easy to see why model portfolios are gaining popularity: These offerings allow you to streamline your business, reduce risk, and get back time to spend with clients. But performance varies dramatically model to model, which can make finding the best fit for your client difficult. Here’s what you should look for when selecting model portfolios.
An experienced provider
High-quality model portfolios come from high-quality portfolio managers. Look for a manager with an experienced investment team and institutionally managed strategies.
Strategic portfolio design
Any model you select must fit the needs of your client. The strategic design can help you determine if a model matches your client’s objectives, risk tolerance, and time horizon.
Tactical asset allocation
It’s important to know if a model can shift allocations to react to market changes—and if the portfolio manager has demonstrated success doing so.
Underlying components
A model is only as good as its underlying investments. Consider whether the model’s investments have a record of strong performance and are well managed.
Due diligence
Does the portfolio manager regularly evaluate the model’s performance? High-quality portfolios are monitored carefully and consistently.
Ongoing support
Good investment management is essential in choosing a model, but a portfolio manager should also provide added resources, such as collateral to help you communicate with clients.
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Important Information
1Morningstar database, March 2024.
Investing involves risks, including the potential loss of principal.
This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision.
Consider the investment objectives, risks, and charges and expenses of the T. Rowe Price mutual funds carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, visit troweprice.com or contact your financial professional. Read it carefully.
The T. Rowe Price model portfolios are a nondiscretionary investment management program provided by T. Rowe Price Associates, Inc. T. Rowe Price mutual funds are distributed by T. Rowe Price Investment Services, Inc. T. Rowe Price Associates, Inc., and T. Rowe Price Investment Services, Inc., are affiliated companies. The T. Rowe Price group of companies, including its affiliates, receive revenue from T. Rowe Price investment products and services.
This material is provided for informational purposes only; it is not personalized investment advice, a recommendation concerning investments, investment strategies, or account types by T. Rowe Price Associates, Inc., or any of its affiliates (T. Rowe Price), and it is not intended to suggest that any particular investment action is appropriate for you. T. Rowe Price’s role is limited to providing your financial professional with nondiscretionary investment advice in the form of model portfolios. The T. Rowe Price model portfolios are only available through financial professionals, and your financial professional is responsible for determining if these portfolios and the mutual funds utilized in them are appropriate for you. T. Rowe Price’s role is limited to providing your advisor with nondiscretionary investment advice in the form of model portfolios. The implementation of these model portfolios and any securities selected for your account is at the full discretion of your financial professional.
Risks: All investments are subject to risk, including possible loss of principal. The model portfolios are subject to the risks of the underlying mutual funds utilized in the model. Fixed income securities are subject to credit risk, liquidity risk, call risk, and interest rate risk. As interest rates rise, bond prices generally fall. International, mid-cap, and small-cap investing are subject to additional risks and volatility. These risks are generally greater for investments in emerging markets. Diversification does not assure a profit nor protect against a loss in a declining market.
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