As investors continue to channel their dollars into index investing, income-hungry fund managers are offering financial planning services to both advisers and individual investors to generate new revenue. This according to a recent article in The New York Times.
“Fund companies have introduced an assortment of services to assist financial advisers,” the article says, offering data from Morningstar showing that advisers have invested about $35 billion in model portfolios provided by big fund companies and asset management providers—including names like Vanguard, State Street and Pimco–compared with $13.6 billion at the end of 2016.
According to Don Phillips, a managing director at Morningstar, asset managers can reap hefty fees from advisers who use their model portfolios well beyond the thinner ones generated by the ETFs included in the portfolios. The article cites the example of State Street, which charges a 0.2 percent “strategist fee” to advisers using its model portfolios—compared to the expense ratio of the SPDR Portfolio Large Cap ETF of just 0.03 percent.
These “turnkey portfolio providers” offer simplicity and easy onboarding with the added comfort of their big names and trusted brands. But the article points out that traditional advisers have the advantage of being able to cater to the wants of clients’ tax needs or sector preferences.