You don’t have to be Derek Zoolander to appreciate the power of models, even if they can’t invest in Blue Steel, Le Tigre, or Magnum.

Model portfolios are en vogue among financial advisors, particularly as asset allocation is all but commoditized and the business has become more about client service than ever. There are already dizzying numbers offered by numerous asset managers, keen to pack their model portfolios with in-house exchange-traded funds and mutual funds. This week, Vanguard expanded its line of models to include fixed income, with a pair of “dynamic asset allocation” options — the Vanguard Fixed Income Risk Diversification and Vanguard Fixed Income Total Return portfolios. “Model portfolios empower financial advisors with streamlined investment manager research and ongoing portfolio construction and monitoring, so they can spend time on the things that really matter to their clients — like ensuring they’re meeting their investment goals,” Brent Beardsley, head of advisor solutions for Vanguard, said in a statement.

Models Help People

Vanguard’s Fixed Income Risk Diversification model is built exclusively with the company’s ETFs, while the Fixed Income Total Return model uses six ETFs and one high-yield corporate mutual fund. The two options have weighted average expense ratios of 0.05% and 0.08%, respectively. Other big asset managers, such as Fidelity and Capital Group, have also built out their model portfolio options this year. The developments come as advisors grow increasingly open to model portfolios, which are pitched as ways to help guide asset allocation and free up time to focus on client relationships and prospecting.

Data from Cerulli Associates show:

• Total assets in model portfolios are projected to hit $2.9 trillion by next year.
• Among firms that use models, 13% of client assets were taking advantage of them as of 2023.
• Just over a third of advisors who used models last year plan to increase usage over 12 months.

What’s Left to Ponder? “It is arguable that long-only investing in public markets has been ‘solved.’ It makes no sense to hire or spend hundreds of thousands on a CIO to build a standard portfolio,” said Alex Caswell, CEO of Wealth Script Advisors. “In the future, the ability to adjust and customize the models is going to be the big differentiator.”

Another advisor, John Bell, of Free State Financial Planning, said the profession is, and should be, moving away from simply managing money, particularly for standard allocations based on Modern Portfolio Theory. “I look for more unique strategies that will complement what I see as the standard 60/40 portfolio and its variants from 0/100 to 100/0. These could be alternative, inflation, bear market strategies, etc.”

Patrick McHenry is leaving the House Chamber and heading for the board room.

Advisory and asset management firm Lazard hired the former US Representative as a senior advisor last week. The Republican congressman from North Carolina served for two decades, briefly acted as the speaker pro tempore of the House, and most recently chaired the House Financial Services Committee. He joins the New York-based firm as the country enters a new and exciting (and occasionally scary) time as the markets respond to tariffs, deregulation, and economic uncertainty.

“Patrick’s deep policy expertise and distinguished tenure in Washington will be invaluable to our clients,” Lazard CEO Peter Orszag said in a statement. The company declined to comment further. Orszag himself previously worked in Washington as the director of the Office of Management and Budget and director of the Congressional Budget Office under the Obama administration.

Career Politicians No More

This isn’t McHenry’s only gig in the finance industry. In fact, he’s quite popular these days. The multibillion dollar venture capital firm Andreessen Horowitz hired him as a senior advisor at the end of February, McHenry announced in an X post. He’s also serving as a senior advisor for the buy-now, pay-later platform equipifi.

However, there are firms looking for non-McHenry, Washington insiders to help steer financial decisions during these volatile and internationally tense times. Centerview Partners took on Reince Priebus, who served as chief of staff in the first Trump administration, as well as Rahm Emanual, who was most recently the US ambassador to Japan under Biden, as senior advisors.

Going Active: The new hire comes at an interesting time for Lazard. The company finally jumped into the active ETF fray earlier this month, launching its first three products in the US. The trio of active ETFs includes:

• Lazard Equity Megatrends ETF (THMZ) aims to capture long-term returns through diversified themes and megatrends around the world.
• Lazard Japanese Equity ETF (JPY) seeks to capitalize on growth opportunities and market inefficiencies in Japanese stocks.
• Lazard Next Gen Technologies ETF (TEKY) exposes investors to high growth stocks tied to companies that work in artificial intelligence, automation, and tech innovation.

The launch represents “a significant step forward” in making Lazard’s investment strategies accessible to more investors, Rob Forsyth, global head of ETFs at Lazard, said in a statement.

Another mutual fund shop is taking a leap of faith into the ETF business.

Faith-based asset manager Praxis Investment Management launched its first ETFs this month, a pair of strategies similar to two of its mutual funds. It’s the latest addition to the faith-based category that, while growing, advisors don’t talk about as much as some clients would like, according to a survey by Eventide Asset Management last year. Less than 40% of those who work with financial advisors said they had heard about faith-based investing.

“Research shows that investors want advisors who understand and engage with their faith-based investing preferences,” Benjamin Bailey, the company’s vice president of investments, said in an announcement. “Our new ETFs provide practical solutions for advisors looking for lower cost, liquid, tax-efficient, values-driven investment options to serve these clients.”

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