Model Providers Look to Stand Out in a Sea of Sameness
October 11, 2023 — Boston
Differentiation will be key to distribution and ongoing management of solutions will be imperative to advisor uptake
In an increasingly overcrowded market, model providers are vying for shelf space. To succeed, providers will need to consider how their products are differentiated to fit into platform product lineups and whether they can deliver solutions at scale, according to The Cerulli Report—U.S. Asset Allocation Model Portfolios 2023.
81% of model providers indicate the most important criteria for selecting platforms and model marketplaces through which to distribute models are the placement and visibility for their strategies on the platform.
Given that overcrowding is a major issue, strategy placement and visibility are key factors in the success of a model on a platform. However, limited shelf space is overwhelmingly the most substantial barrier to placing models on distribution platforms, according to 48% of model providers.
“Models can be viewed as highly commoditized, particularly in target-risk/target-allocation products,” says Matt Apkarian, associate director. “In general, home offices do not like hosting substantially similar products on platforms and take only as many products on the platform as they can find gaps in the lineup needed to meet the portfolio objectives of their clients. This creates extreme competition between model suites and a need for differentiation to achieve placement,” he adds.
At the same time, model providers selecting platforms must consider whether have they have the resources to deliver solutions at scale. Ongoing management of models on platforms can be an onerous process for model providers, as processes for model updates across platforms lack uniformity and create operational overhead for providers. For instance, the task of updating tickers and weights for each model is one of the top pain points listed by several model providers that discussed difficulties in working with various platforms.
Cerulli recommends model providers think strategically about the platforms they are considering and whether their solutions are aligned with the needs of advisors. “Even with proper placement, models do not sell themselves, so distribution efforts are essential to grow model assets under management,” says Apkarian. “Model providers should prioritize platforms preferred by advisors as a top priority for product placement.”
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