Actively managed model portfolios are becoming increasingly prominent across the retirement industry. There has been a major shift away from the antiquated approach of managing portfolios via recordkeeping systems, towards a modeling system where portfolios can be unitized at a global level and synchronized across plans, reducing the time and hassle of distributing model portfolios to plan participants.
Mid Atlantic Capital Group designed ModelxChange®, an actively managed model portfolio platform, to benefit plan participants by allowing advisors to efficiently integrate ETF and mutual fund investment strategies into 401(k) plans. We were among the first to provide this technology over a decade ago, which was a unique option compared to the primarily retail-oriented models offered at the time. As the retirement industry began to see increased demand for active management, our model platform continues to be a leader in this space.
Model portfolio trends in the industry today
As the demand and usage of models becomes more widely used, we see three key trends driving the retirement plan industry today:
- Efficiency is key. Retirement plan advisors are constantly looking for more efficient ways to manage plans, investment menus and offerings for their participants. Investors are also looking for a more efficient path toward retirement, calling for a “work smarter, not harder” mindset. The Mid Atlantic platform is a one-stop shop where managers and advisors can run different rebalances, manage allocation changes and fund swaps at a global level and see a trickle-down effect across the entire platform for their plans and participants. ModelxChange is a great way for advisors to internally run their own models, if desired, or use the third-party management features to free up more time to advance their business and relationships with current and future clients. This flexibility has also been increasingly important throughout the pandemic, as the retirement industry took a major hit and participants needed the extra one-on-one time with their advisors.
- Active management is growing. The transition from passive management to active management is another trend fueling the shift to model portfolios. Participants feel more comfortable having their investments managed by a professional money manager who is responsible for their choices. This style of management allows for a portfolio to be highly personalized to the individual investor and desired risk tolerances. After the turbulence of 2020, customized risk management is seen as essential by many investors.
- Technology is driving adoption. As in most industries, technology also plays into the increased traction for model portfolios. Technology is rapidly outpacing the older systems that have long been in place and offers more flexibility to those who have investments in model portfolios. For example, if a participant leaves their company or retires, but likes their current investments, investments from a 401(k) can be rolled over into an IRA or other type of retirement plan within the platform itself. This provides flexibility (and added value) to participants who want to take their investments wherever they go. In the Mid Atlantic platform, a rollover is possible today with a little effort, but we believe as the industry evolves, rollovers could be processed with the click of a button.. Advisors should expect to see this evolution happening sooner rather than later.
Benefits of model portfolios in 401(k) plans
Model portfolios and ModelxChange are so attractive to advisors and sponsors because of the customization, flexibility and personal touch they provide. In traditional investments, risk tolerance is based on age. Alternatively, with the active approach taken in model portfolios, advisors can plug in key points and dive into the personal risk tolerance of the individual investor, regardless of that person’s age. This offers a level of freedom not found in other platforms.
The ability to customize investment strategies encourages people to stay invested in their accounts. Far too often, early-career individuals get discouraged by a big loss and stop investing. On the other end of the spectrum, if someone nearing retirement experiences a big loss, their timeline could be completely derailed. A customizable, active management style and the increased agility it provides, can help prevent such occurrences.
ModelxChange is an open-architecture platform. Managers and advisors can build models that are not limited to plan fund lineups, offering greater flexibility. In the Mid Atlantic model portfolio platform, there are over 27,000 investments available to build into these strategies, providing managers with a large pool of options. After the initial portfolio construction, investments can be swapped in and out, as desired
The coronavirus pandemic derailed people’s lives and initiated a retirement crisis for the whole country. When stressful circumstances occur, such as the unavoidable economic struggles people have experienced over the past year, advisors need to free up time to touch base with their clients and calm their fears. An active approach to investing for retirement could be the solution that helps those impacted get back on the right track, especially when coupled with a models-based strategy that offers customization, increased efficiency and less of a time commitment compared to the outdated approaches lingering in the industry today.
For more information on ModelxChange, click here or feel free to reach out to me directly and I’d be happy to show you the efficiencies the system can provide you.
SVP Institutional Retirement Services | Mid Atlantic Trust Company
A: 1251 Waterfront Place