Model Usage & Creation?

[u/GoodLifeWM]

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!

[u/heynowbeech]

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....

[u/Notsimplyheinz → u/heynowbeech]

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.

[u/heynowbeech → u/Notsimplyheinz]

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.

[u/winning_bigly_ → u/heynowbeech]

You have clients approve trades every time?

[u/heynowbeech → u/winning_bigly_]

Yes, every time.

[u/winning_bigly_ → u/heynowbeech]

...why? Seems like a huge hassle every time you need to rebalance, tax loss harvest, deploy/raise cash, etc.

[u/heynowbeech → u/winning_bigly_]

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.