The rise of model portfolios: Global trends and developments

In the US, model portfolio assets are on a remarkable trajectory and are expected to reach US$3.4 trillion by 20271, while in Australia, model portfolios implemented via managed account have grown nearly 30 per cent in just one year – more than doubling over five years.

This growth is driven by evolving client expectations. Over the past five years, investors have come to expect more from their advisers, increasing the demand for efficient and effective investment strategies. Model portfolios have proven invaluable, freeing up advisers’ time to focus on client relationships and strategic advice. In fact, 60 per cent of advisers cite time savings as the main benefit, with many redirecting nearly a full day each week to higher- value activities.

In the US, this benefit is realised by 55 per cent of advisers, who use model portfolios to spend more time on financial planning.

Investor awareness is rising. In Australia, investors who know their assets are in model portfolios report significantly higher satisfaction with their advisers, valuing transparency, effective issue resolution, and portfolio optimisation. However, nearly half of investors remain unaware of their model portfolio holdings, highlighting an opportunity for further education and engagement.

By understanding the trends and developments in the US market, we can gain valuable insights that may shape the future of the Australian model portfolio market.

Alternatives: Expanding the investment universe

A notable trend is the growing inclusion of alternative investments in model portfolios. In the US, demand for private assets is driven by their potential to provide diversification, downside risk protection, reduced volatility, and enhanced return potential. Providers in this region often offer dedicated models of alternatives, rather than integrating them into multi-asset portfolios.

The demand for private markets exposure is mirrored in Australia, with over a third (35 per cent) of managed account advisers keen to access them through managed accounts. Both locally and abroad, platforms are evolving to better support the valuation and administration of these less liquid assets.

Asset allocation and investment themes

In the US, most model portfolios are risk-based (73 per cent), with 21 per cent focus on specific investment objectives. Strategic asset allocation (SAA) is used by 81 per cent of models, and 63 per cent employ tactical asset allocation (TAA). ETFs are increasingly preferred as portfolio building blocks, with passive ETFs representing nearly 40 per cent of model assets.

In Australia, managed account advisers allocate close to two-thirds of client assets to managed accounts as the core, supplementing with term deposits or actively managed funds as satellites. Growth-oriented strategies remain popular, with two-thirds of advisers adopting them, while risk-based strategies are used less frequently than in the US – 45 per cent – particularly for clients with assets between $500,000 and $1.5 million.

Adviser experience and due diligence

In Australia, advisers are recommending fewer models — 12 on average, down from 22 in 2024 — reflecting a focus on efficiency and reduced duplication. Due diligence remains resource-intensive, with advisers using five tools on average, including investment manager reports, platform information, and research house tools. Performance is the most important factor when selecting managed accounts, followed by platform availability and fees. This trend is consistent in the US, where performance, investment policy, and fees are the top factors used to differentiate model portfolio offerings.

Locally, the benefits of managed accounts become increasingly evident over time. Advisers with four or more years of experience using managed accounts report, on average, 35 per cent higher client inflows and FUA balances compared to newer users. The value proposition is evolving, with 38 per cent of advisers outsourcing portfolio construction to investment professionals, 20 per cent delivering more tailored services, and 26 per cent are shifting their value-add from investment returns.

As the investment landscape evolves, exploring optimal strategies is essential. if you’re looking to leverage ETFs within model portfolios, visit the State Street ETF Model Portfolio webpage to discover how our solutions can enhance your investment approach with greater transparency, performance, and cost-efficiency.

Kathleen Gallagher, head of ETF model portfolio solutions EMEA & APAC, and Sinead Schaffer, ETF model portfolio strategist, State Street Investment Management.