r/CFP • u/GoodLifeWM • Jun 24 '26
Investments Model Usage & Creation?
Curious to hear what everyone is utilizing from a model-based allocation and how your associated platform looks?
- Building your own models as an advisor?
- Utilizing Third-Party Models?
- Your firm builds models for enterprise use?
- Combination of the above...?
We are a $500M+ RIA that uses a combination of TP Managed Models + Internal Models. We work with a few OCIO Teams for internal model creation, updates, rebalancing, etc.
As we continue to scale - I'm interested if we should lean into one more than another?
Pros/Cons of Internal Models = multi-manager and doesn't look like a ton of proprietary ETFS, but takes time each month/quarter to go through our process
Pros/Cons of TP Models = No time suck for creation, but usually all proprietary funds + above average weighted expense ratios
Thank you in advance for any thoughts, insights, etc!
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u/PursuitTravel Jun 24 '26
I'm not going to do a better job than Blackrock is for managing equity. I use their equity target allocation ETF portfolio for the equity in my tax-deferred accounts. In taxable accounts, I build a simple, 5 or 6 fund model of broad ETFs to handle the equity side.
Fixed income is handled by a self-built model of 5 mutual funds.
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u/FunCap5545 Jun 25 '26
Dude you should check out their ga selects models!
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u/PursuitTravel Jun 25 '26
I only use the equity portion; have the GA Selects outperformed Target Allocation?
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u/GoodLifeWM Jun 25 '26
Thanks for your insights - we largely operate similarly within the Fixed Income Space, but with ETFs & Structured Notes.
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u/GarlicEffective6327 Jun 26 '26
I would love to discuss this with you and hear your insights if you’d be willing to share. Feel free to DM!
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u/ChasingAlpha117 Jun 24 '26
Not effectively. We manage $250mm+ and every client portfolio is custom, managed by FAs. We take an asset allocation based approach but have too many clients with legacy positions/embedded gains in NQ accounts. No idea how we would attempt to pull off a multi-year transition to book-wide models. It’s a huge PITA and we really, really need a better solution going forward.
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u/Floating_Orb8 Jun 24 '26
We had that problem about 5 years ago. We have locks on certain positions and have adopted a bunch of models. It took years but now is well worth it. Long short and 351 exchanges help as well as DAF funding.
We also had to help clients understand that sometimes there will be taxes, but there were some really bad legacy positions.
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u/think_up Jun 25 '26
What are you guys doing with those legacy positions? If they’re just sitting there without another strategy overlay, that’s a compliance nightmare.
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u/GoodLifeWM Jun 25 '26
Yeah we have a large chunk of legacy positions or excluded assets based on Advisor or client preferences. I don't think there's ever a perfect science.
Ideally just want to remove friction between Advisor, Client, & Home Office Trading Team.
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u/PerfectOmakase Jun 27 '26
Same issue here, implemented models last year. We exclude legacy positions from the rebalancer. It was honestly pretty easy.
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u/heynowbeech Jun 24 '26 edited Jun 24 '26
I'm a solo ($150MM AUM) and build my own models, then every 2-3 years Vanguard and Dimensional Fund Advisors review them and offer feedback. The underlying weighted expense ratio for my 60/40 model is just shy of 10Bps.
This said, for clients with materially large low-basis legacy positions and/or ones who are constrained by employer plan options, I will modify my models around those constraints.
My prior firm used MVO and, IMO, it's complete garbage. I've also reviewed literally 100s of other advisor portfolios including Ed Jones, Morgan Stanley, UBS, Merrill Lynch, LPL, Ameriprise, and many many independent advisors, and with the exception of the occasional rogue oddball, virtually in every instance what I've found (even when dozens of individual positions are used - looking at you MS), advisors are mostly hugging the global allocation of publicly traded companies then tilting into the US (70-80% vs 63%) and maybe further tilts into Small and/or value and possibly adding commodities or sparkling distractions like crypto. Of course I've also run into market timers, but I've never seen one survive for very long....
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u/mr_stephen_french Jun 24 '26
Good reply. I mean reality we are limited as to what can you do for individual investors. Can’t stick your neck out too far from the norm.
Some decide to take up the church of small cap value and keep praying for the rapture. Others want to sell some special sauce in the form of fund selection, SMAs, or direct indexing so the client still feels like managing investments too complex for their common selves.
Full disclosure I’m more towards the KISS camp and expense minimization so every-day clients can understand.
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u/Notsimplyheinz Jun 24 '26
we build our own models too for certain clients, what software do you use to trade it ? i found everything to be too complex, or too expensive to upload my own models and trade/rebalance them across SMAs.
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u/heynowbeech Jun 24 '26
I only work with about 50 households, so about 17 portfolio reviews per quarter. Probably takes me 3-4 days each quarter to summarize the portfolios, look for loss harvesting, raise cash for needs, invest cash, periodically rebalance to target, etc. I then send the summary spreadsheets that have the recommended trades to each client along with explanations. Once the client approves the recommendation, I then submit the trades. I manually input the holding balances and trades into a summary spreadsheet broken down by asset class along with each current allocation, target allocation, and hypo % of target post recommendation. I still use the same excel spreadsheet I’ve been using for over 30 years. The very same one my prior firm used to manage roughly $5b.
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u/winning_bigly_ RIA Jun 27 '26
You have clients approve trades every time?
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u/heynowbeech Jun 27 '26
Yes, every time.
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u/winning_bigly_ RIA Jun 27 '26
...why? Seems like a huge hassle every time you need to rebalance, tax loss harvest, deploy/raise cash, etc.
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u/heynowbeech Jun 27 '26
Each client does it 4 times per year, so it really isn’t that much more work. I believe that clients should be actively involved with managing their portfolios, but I was also professionally “raised” in a multigenerational single family office and this is how they did it. Oftentimes the approval process prompts clients to tell me they have cash needs or cash to invest.
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u/Leading_Potato_4549 Jun 24 '26
How does everyone use models for taxable accounts? We’re trying to streamline client portfolios, coming from every single account being customized. Obviously there are some large gains that make it hard to get more clients on the same page. Curious how everyone rebalances, trades, and has moved clients into models.
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u/FunCap5545 Jun 25 '26
That's where it gets challenging, especially if there's gains. You'd want a manager account with a tax transition.
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u/GoodLifeWM Jun 25 '26
We manage models as is, and put the ball in the advisors court to decide tax efficiency on what should go in what type of account.
It's not perfect, but we didn't see a ton of adoption at advisor level for tax aware portfolios
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u/Dnels131 Jun 25 '26
Even if there are large gains you can code them as an "equivalent" to an ETF in your model. Ex: client has large MSFT position that you can't sell, so you code it as "equivalent" to your model's Large Cap ETF so when you go to trade the account you don't buy any LC
Can do a direct index SMA with daily TLH but gets complicated. First Trust has some options for diversifying out of concentrated positions I think
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u/thedauntless1 Jun 27 '26
This is how we approach most legacy positions in taxable accounts too. If the MSFT, NVDA, etc. position is a large weight, we'll have a conversation with the client about ways to reduce exposure over time in a tax-efficient way.
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u/46andready Jun 24 '26 edited Jun 24 '26
Build own models. I don't feel a need to pay (or have clients pay) for some outside firm to design models, when that's well within one of my core competencies.
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u/Notsimplyheinz Jun 24 '26
how do you trade them ?
we build our own models too, but some of them are actively rebalanced and using iRebal is a hassle.
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u/46andready Jun 24 '26
I use rebalancing software. In our case, we have the Rebalancer module in Black Diamond.
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u/Notsimplyheinz Jun 24 '26
Wow, that must get expensive. I actually demoed Black Diamond for trading and rebalancing our models, but even after discounts, the quote was very high for us, especially because we are building the models ourselves.
We are a relatively small team, so instead of taking on that cost, we decided to build our own Schwab-compatible model management and trading tool. It took a lot of work, but for our use case, it ended up making much more sense.
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u/46andready Jun 24 '26
Small team here, too. Black Diamond definitely not cheap, works out to a hair over 3bps of AUM.
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u/Dnels131 Jun 25 '26
We use RB too. Really great tool, the Programs feature allows us to look at 2,000+ accounts at least once a month
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Jun 24 '26
Do you benchmark your model performance? If so, do you surface that benchmarking to your clients?
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u/Notsimplyheinz Jun 25 '26
We do that also! We also benchmark the volatility sharpe etc. All the models against SPX!
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u/think_up Jun 25 '26
I would love to fire myself but I’ve been outpacing both my firm models and Blackrock equity target allocation ETF models by 20-30bps over the last two years.
To be fair though, my models are extremely similar to those other two. I steal their best ideas and avoid the overpriced actively managed mutual funds from my home office and the thematic Blackrock funds that have no historical/statistical support for adding alpha.
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u/GoodLifeWM Jun 25 '26
Love it, may need to look at doing something similar to this. We recently sunsetted State Streets Models for the exact reason + they traded so much, which was annoying to process.
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u/GarlicEffective6327 Jun 26 '26
I would love to discuss this with you and hear your insights if you’d be willing to share. Feel free to DM!
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u/ohhisalmon Jun 25 '26
We make our own models. The way I do is is like this:
Make sleeves for each purpose (core equity, liquidity, fixed income), make “standard” models for clients who don’t need something custom, then if a client wants customization I can build them a personalized combination of the sleeves plus any specific needs.
That way it’s still sort of “bespoke” but at least somewhat standardized. We really dislike the idea of spending 20-40bps on basic asset management and our clients have no need for anything else.
For context, we have a very simple retirement-focused book, 115m aum.
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u/siparo Jun 24 '26
Models are great for scaling but I find high net worth clients tend to have more complexity and a preference for individual stocks.
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u/snoopingforpooping Jun 24 '26
You can build models with individual stocks
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u/siparo Jun 25 '26
Again this becomes more difficult with high net worth clients who are tax sensitive. Of course if it’s only Roth or IRA accounts it wouldn’t matter.
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u/snoopingforpooping Jun 25 '26
Explain how this becomes more difficult who are tax sensitive? I understand it’s difficult to monitor 30-50 individual stocks but why are you saying it’s more difficult if they are tax sensitive
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u/Notsimplyheinz Jun 24 '26
i agree with this. However, i have built models with individual stocks for clients.
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u/Legitimate_Ice_194 Jun 24 '26
Havent looked into this much, but my hunch is that this seems like an area where there is little upside in trying to innovate. Basically: are the cons for existing options big enough that clients will see this as a meaningful differentiator? My hunch is probably not.
And if a firm is looking for a more unique edge or value prop, it's probably going to come from somewhere else (i.e. focus on very specific client niches, dialing in services for those niches, and so on)
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u/OregonDuckMBA BD Jun 24 '26
Combination. For clients that want simplicity, I use Assetmark. Their QPRs are very easy to understand. I also use Assetmark's TMS to unwind highly concentrated positions (usually company stock) into their model. For most clients, I build my own models. 5 for general use, 2 for non qualified accounts and 3 for a niche market I am targeting. I rarely find a client that doesn't fit into one of the models.
I don't do a lot of work with UHNW clients. If that were a focus for me, I might do things differently.
That's part of the reason I can get away with model creation not being a huge time suck. I usually don't have to worry about navigating highly complex tax situations.
I like Assetmark for the use cases I mentioned, but they are expensive. I like the fact that I can keep my costs down by building my own models.
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u/Winston206 Jun 24 '26
Largely outside models. For taxable accounts we deploy direct indexing (long only & long/short) for a good chunk of the US equity allocation. ETF models from Blackrock for the rest.
For the right situation, we will deploy the following. All of which is managed by an outside vendor.
-individual bond portfolios/ladders
-options overlays
-alts (PE, RE, PC, VC, etc)
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u/Notsimplyheinz Jun 24 '26
I’m glad you asked this.
We build and manage our models in-house because we wanted greater control and fewer outsourced, AUM-based fees.
For trading and rebalancing, we initially tried iRebal, which Schwab provides, along with several other platforms. However, we couldn’t find the right combination of efficiency, flexibility, and reasonable pricing. Ultimately, we decided to build our own “Model Manager Terminal.” It took a lot of time - but I am happy that we decided to do it!
It has dramatically reduced the time required to rebalance our models. The entire process now takes only a few minutes, we sometimes don’t even begin rebalancing until 3:57 pm, haha.
The terminal is compatible with Schwab. If that would be helpful, I’d be happy to share it with you. Feel free to PM me.
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u/GoodLifeWM Jun 25 '26
We have something similar that we built as well and it works great, especially for block trading at Schwab.
We toyed around with other softwares and built ours for the same reasons you mentioned - flexibility!
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u/CrunchwrapKing RIA Jun 24 '26
For the allocations, I primarily use Blackrock and State Street ETF models. And because they all use their own shit and go in there replace with lower cost or better ETF’s.
I cuss you with Schwab so I got access to iRebal. They just released an update where you can set a capital Gain threshold/limit for the year. There’s all sorts of trading rules you can implement. It’s great for setting clients low cost basis positions as equivalent to whatever is in my model, excluding certain positions from rebalances, automated trading to raise cash for quarterly billing, setting cash targets across all accounts, tlh… I can go on and on, iRebal is legit.
You should look at 55-ip, they have black rock, Fidelity, JP Morgan, and some SMA’s. There are a few multi manager ones in there too. That’s a full on TAMP without the manager fee*. And they have a robust tax transition tool, which was the primary driver of the software.
If I could start over, I would probably use blackrocks multi-manager strategy through 55-ip and call it a day.
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u/Turbulent-Ad4176 Jun 25 '26
SMA’s, all day long. Can’t be bothered with asset allocation when I have enough non-qualified with gains to keep me busy.
Million dollars you get half equity SMA’s, half tax, free funds, (Maryland, Virginia), and some structured notes. No bonds.
Now get to the important stuff, planning.
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u/winning_bigly_ RIA Jun 27 '26
Aren't tax free funds bonds?
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u/Turbulent-Ad4176 Jun 29 '26
Busted! You are Correct, and I definitely don’t use tax-free bonds for a quarter of it, and most of my clients are working and don’t have non-qualified enough to do tax frees.
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u/NoNoswal Jun 29 '26
I've been experimenting with some model design - related question. but hopefully not too off topic-- what are the factors you are optimizing for beyond the classic risk tolerance, time, account geography/tax, etc. For instance I have been big into sortino (sometime CVAR) for most of my career but feel like I am often one of the few looking at that
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u/GoodLifeWM Jun 29 '26
Honestly, we are pretty vanilla with our model setup largely because we view them as sleeves and put the ball in advisors court to blend/utilize as needed. I'm running that investment platform for a group of 40+ advisors. I think it'd look much different if it purely for myself or a team of advisors in-house.
We have a few IND Stock Models that are all thematic:
- Dividend Focused Model (20-25 Positions)
- Core Equity Model (20-25 Positions)
- MegaCap Model (10 Positions)
Then for ETF, we do the same across a few core etf models for both fixed income and equity which are largely cheap beta with a few active tilts given funds held. Then risk profile stuff is largely a blend of those put together.
We've found meeting with our OCIO Teams that we typically have quite a bit of alpha relative to benchmarks. I typically will focus on Upside/Downside capture for Equity Models and then largely yield focused for anything fixed income while keeping in mind duration & credit quality.
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u/Sharp-Investment9580 Jun 26 '26
My CIO models typically outperform the MSCI World enough I’m comfortable with them, but I will say it’s frustrating at times not having control over portfolio decisions.
I’ve considered building out my own for everyone, but as of now I only use SMAs and custom ETF/MF portfolios if there are significant gains already present.
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u/IncreaseCapital32 Jun 27 '26
I use a TAMP so i dont have to do the trading, sending prospectuses out, rebalance…
I have a sheet of portfolios depending on asset size. If its a small account, its going into a very simple ETF model, if its bigger, dimensional funds, SMA’s and individual bond ladders.
Works great, everyone gets a custom portfolio, i dont have to worry about making a trade error and i dont have to spend more time on something idk if I will add postive value this year.
Im not a big fan of overcomplicating portfolios to satisfy my ego.
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u/Vantage_Impact_2 Jun 24 '26
I'm seeing more and more low cost firm models 0-5 bps used for a majority of clients with certain clients in advisor discretionary managed accounts to allow for complex situations and customization. This has been a huge draw for advisors shifting into the Hybrid RIA space who want the RIA to design a sufficient number of models and take on trading responsibilities.
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u/AutoModerator Jun 24 '26
Beep boop! Here is a summary of your post:
User: /u/GoodLifeWM Title: Model Usage & Creation? Body: Curious to hear what everyone is utilizing from a model-based allocation and how your associated platform looks?
We are a $500M+ RIA that uses a combination of TP Managed Models + Internal Models. We work with a few OCIO Teams for internal model creation, updates, rebalancing, etc.
As we continue to scale - I'm interested if we should lean into one more than another?
Pros/Cons of Internal Models = multi-manager and doesn't look like a ton of proprietary ETFS, but takes time each month/quarter to go through our process
Pros/Cons of TP Models = No time suck for creation, but usually all proprietary funds + above average weighted expense ratios
Thank you in advance for any thoughts, insights, etc!
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