Personalization shapes nearly every consumer category today. From fashion and travel to streaming and social feeds, consumption is tailored—by both conscious choice and algorithmic nudge. The same trend is evident in the investment realm. In this paper, we examine the ongoing transformation of model portfolios from one-size-fits-all products to customized investment solutions, enabled and enhanced by technology. We examine their attributes through the lens of financial advisors, including registered investment advisors (RIAs). With their roles evolving amid demographic shifts and technological disruption, today’s models give advisors new ways to deliver more dynamic, personalized experiences for their clients.

Who is going to watch all this dough?

The advisor community faces a predicament: fewer advisors and more wealth to manage. Over the past decade, the advisor workforce has grown at a sluggish rate of only 0.3% per year. Retirements outpace recruitment, with advisors, on average, 10 years older than their peers in similar fields. An estimated 110,000 advisors, or 38% of the current workforce, are expected to retire within the next decade. Those advisors oversee approximately 42% of total industry assets.

Meanwhile, there are more assets to manage, with more expected to come as generational wealth transfers accelerate. McKinsey projects the number of advised relationships to rise to 67–71 million by 2034, a 28–34% increase from 53 million in 2024. Affluent households, or those with $500,000+ in investable assets, are expected to grow 4–5% annually, outpacing overall population growth of 0.6%. Millennials, the largest adult group at 72 million, already hold 25% more wealth than Generation X and Baby Boomers did at the same age.

The gap between growing wealth and more clients on one side and the advisor shortage on the other creates opportunities for creative solutions. Model portfolios are emerging as a bridge across the gap. 

These are not your parents’ models

Model portfolios have long played a pivotal role in enhancing business scalability, efficiency and consistency within the financial advisory industry. For decades, financial advisors have relied on them to standardize asset allocations, guide fund selection and manage risk, often freeing time that would otherwise go to building individualized portfolios. Yet advisors and practices differ in their preferences, investment philosophies and styles, and for much of their history, models were limited in their ability to account for these differences.

Just as technology has evolved, so have models. They are increasingly dynamic, supported by technology that makes their infrastructure stronger, better integrated and more efficient. At the same time, technology has raised expectations for personalization, setting new standards for the kinds of experiences and outcomes clients demand from their advisors. This demand has models evolving into comprehensive solutions that advisors customize to align with client preferences, draw on the best insights from multiple firms and incorporate a wider range of account structures and asset classes.

This evolution is fueling greater demand for models among advisors, many of whom now view them as critical to future-proofing and scaling their businesses. Implementing models effectively allows advisors to optimize their skills and increase specialization in other areas where there is increased demand, such as legacy planning or charitable giving. The payoff from that upskilling could be significant, with levers like these estimated to expand advisor capacity industry-wide by 10–20% over the next decade—the equivalent of adding 30,000 to 60,000 advisors at 2024 productivity levels.

The models spectrum is a matter of control

There are four main approaches to model portfolio construction, ranging from least to most control and customization. Within each approach, advisors can choose types, such as strategic, tactical and absolute return, while still benefiting from professional oversight and risk management. Which model an advisor uses hinges on the level of control they want to maintain.

• Home office: These models are designed by the advisor’s parent firm or home office, ensuring consistency across the platform and reducing individual advisor workload. They offer limited flexibility if client needs diverge.
• Third party: These models are pre-packaged or off-the-shelf solutions from an asset manager or strategist. They simplify portfolio management and save advisors’ time but offer limited flexibility and customization.
• Customized third party: These models from external providers have customization options, such as tailoring for client preferences or tax considerations. They balance outsourcing efficiency with advisor input, enabling adjustments to benchmarks, targeted market exposures and exposure to specific tickers.
• Do-it-yourself/Build: These models are constructed directly by advisors or practices, providing maximum control over security selection, allocations and investment style. This approach requires significant resources, expertise and oversight to manage them effectively.

Proof of models’ growth is in the flows

Momentum for this generation of model portfolios continues to build. In 2024, models totaled $37.8 billion of net inflows, a significant 62% increase from 2023. Advisors who have traditionally used risk-based portfolios are gravitating towards multi-manager models predominantly constructed of ETFs. Another growing trend is model pairings, where advisors combine multiple models from different providers to blend different styles and achieve even greater diversification.

Asset managers show a strong preference for proprietary mutual funds and ETFs and charge no additional fee, while third-party strategists, who have limited proprietary products, favor nonproprietary ETFs and typically charge a fee. The growing use of proprietary ETFs underscores their importance in asset allocation models. Notably, active ETFs comprise a growing proportion of overall allocations.

According to Morningstar, 44% of models currently include at least one active ETF, with an average allocation of 33% to active ETFs within those models. Active adoption is expected to accelerate, as model providers rank active ETFs as the top product they plan to incorporate over the next 36 months. Additionally, all respondents to Morningstar’s survey intend to add active fixed income and nearly all plan to add equity ETFs over the next three years, aligning with trends. The shift toward ETFs, given the various benefits they offer—from liquidity to transparency to accessibility—has helped reduce fees from mutual fund heavy-models and has improved tax efficiency in many cases. This evolution increasingly blurs the lines between traditionally passive ETF-only models and hybrid approaches.

Technology is a powerful enabler for advisors

Technology can help advisors expand their portfolio management capabilities, a big edge against the backdrop of more clients to service and more wealth to manage. For example, platforms and technology partners such as 55ip help advisors manage taxes in a more scalable way – allowing for tax-friendly transition to models, ongoing tax-loss harvesting, tax-smart withdrawals and more. Tax management capabilities are becoming increasingly important for advisors to offer clients to add value and further differentiate their services. It’s not just about keeping up; it's about advisors finding new ways to use their expertise.

Future state opportunities through AI

In line with broader trends, AI usage is expected to help deliver more tailored portfolio allocations and strategies in the future. It should assist advisors in creating customized portfolios to their clients’ goals and needs, using all available vehicles. Such flexibility would allow for adjustments as client needs change or market conditions shift.

For example, the importance of tax management compounds as clients age through different market cycles. Many advisors don’t have the resources to implement comprehensive tax strategies, which makes tax management tools infused with AI a significant opportunity. Advisors could handle varied tax scenarios more efficiently by optimizing tax management with automation.

Improving the model infrastructure

Digital infrastructure is closely correlated with the continued growth of more customizable and scalable models. One of the biggest hurdles to scalability is integrating models across multiple platforms. Each fund must be approved for use within the models, a process that is often intricate and followed by ongoing maintenance to keep models functioning properly. The complexity increases when models must be customized for individual platforms. And when similar models are deployed across several platforms, managing and updating them is labor intensive.

A “do-everything” platform for investment models doesn’t exist yet, but the industry is heading in that direction. Platforms that can accommodate a wide range of investment vehicles, including alternatives, ETFs, individual stocks and bonds, SMAs, and tokenized assets can provide a holistic view of an investor’s financial picture.

RIAs: Model opportunities in motion

With RIAs dedicating more time to financial planning and client service, the need to streamline investment management is more acute than ever. And increasingly, RIAs deploy models in ways that directly support efficiency and growth.

Aggregator firms use models to integrate acquired clients into a consistent framework, while firms growing organically rely on them to scale assets without proportional increases in headcount. Models also help firms reduce compliance risk by standardizing risk tolerances across their book of business. Firms can replace dozens of different 60/40 client portfolios with one consistent, structure.

While models are improving operational efficiency and enhancing scalability, they have a long runway for growth. On the wish list for many RIAs are:

• Models that better serve wealthier clients through diversification, tax efficiency and customization
• Solutions that address specific objectives such as income, downside protection and tax sensitivity
• Opportunities for broader access to alternatives and SMAs for more comprehensive portfolios.
• Platforms that enable them to combine best-in-class managers across firms

In the past, models were considered small account-only solutions, and that remains the case for many advisors. However, with more sophisticated, tax-managed investment solutions and the inclusion of almost all assets inside a model, we expect greater adoption of model portfolios to serve a broader range of clients, from emerging investors to higher-net-worth individuals and family offices.

What’s next: models that continue to redefine standards

Wealth management is among the most personal of endeavors, often carrying generational implications. With personalization a growing priority for investors, we expect continued growth of model portfolios that better reflect individual investor preferences and objectives. These investment vehicles bridge the demand for personalization with the practical demands of portfolio management amid demographic shifts and technological disruption. As the role of the advisor continues to evolve into more complex holistic financial planning, models can enhance their ability and capacity to be effective resources including a variety of investment vehicles including ETFs, Mutual Funds, SMAs, and potentially investments in private markets.

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