Vanguard’s New Custom Model Portfolios Hope to Prove One Size Doesn’t Fit All

There are models everywhere, and we’re not talking about fashion week.

Vanguard on Wednesday announced new customizable model portfolios, which will allow advisors to tweak the firm’s existing strategies and customize them based on client preferences. Advisors can work with one of three selected partners — Vestmark, Orion or SS&C Black Diamond Wealth — to adapt the models to fit values and tax preferences. The move highlights the $13 trillion asset manager’s efforts to keep up with custom momentum: Last year, Goldman Sachs launched its own public-private portfolios, and custom model portfolio assets hit $258 billion in March, a 40% increase year over year, according to recent Morningstar data. The Vanguard offering is the latest option for advisors building custom portfolios for their clients.

“This is just a natural proliferation of everybody’s preference to have more tailored experiences,” said Rob Battista, executive vice president at Vestmark. “Whether people are buying cars or clothes these days, they expect a very tailored experience. And investors and advisors don’t feel any differently about their investments.”

Customized Craze

Initially, Vanguard plans to roll out four model families, according to the firm. Those options include active-passive, dynamic active-passive, fixed-income and income-oriented products.

“The framework for this is, ‘Mr. and Mrs. Advisor, you commit assets to me, we’ll create 10, 20 custom models that no one else sees,’” Battista said, adding that Vanguard helps advisors understand what their needs and preferences are. “Then I have 10 or 20 models that are specific to my practice.”

The target audience is mostly the independent channel, since larger broker-dealers already allow for more customization. The partner firms will act as subadvisors, although the advisor is still the one making the investment decisions, Battista said.

Model Citizens. While it’s still early innings for the trend, there have been major improvements in investment technology that allow for better customization, Battista added.

“What you’re seeing now are asset managers coming in to address some of the pushback on traditional models,” he said, adding that they were more rigid and didn’t consider taxes. “Now asset managers’ solution to that is … ‘We’ll build it together.’”