Adopt a systematic process as you transition to a models-based approach

So, you’ve decided to move to a financial models-based practice. You’re about to set up your practice for future capacity, and therefore growth.

You’ll potentially save up to 450 hours per year on the back end, but no denying there’s work to be done on the front end to get your models going. To make it as easy as possible for you, we’ve outlined some steps below to get you moving.

Step 1: Take a look at the book

First, survey your book of business, segmenting your clients and determining the type of models you’ll need. A good approach is to decide on one model for each investment objective, while potentially adding specialized models for unique situations like extreme market volatility.

financial advisor clients

Step 2: Make your bucket list 

Next, find commonalities among your existing portfolios to determine which investments you want to use across your financial model. The goal is to finalize a bucket of funds you’ll consistently use.

Step 3: Do a stress test

Once you have your menu of investments ready to go, construct each model.

If you’re using Advisor Sleeve, you’ll be able to see how each investment impacts the model’s risk tolerance as you build it, making it quick and easy to construct. If you’re not using Advisor Sleeve, use another risk tool to determine how your model measures up.

When done, consider getting third-party help to analyze your model. Many product sponsors have portfolio analysis teams who can stress test your model and give you ideas for how to make it as effective as possible.  

Step 4: Add clients

Develop a prioritization plan to move your clients into the models in a tax-efficient manner. You might be able to move non-taxable accounts very quickly, whereas taxable accounts might take two or three tax years.

While your plan is a starting point, opportunities to transition faster may appear. For example, if a position becomes negative, it could be a chance to move it into your new model without increasing the tax hit.
 

Remember to seek help

As you work through the process, we at LPL are here for you. You can leverage the LPL Research team, who can help you condense your fund list and perform portfolio analyses. Your Advisory Consulting team is also available to help you mine your book using a Business Analysis Report.

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Becoming a “model” advisor

By using models, you’ll have a defined and documented process that gives you clear measures of portfolio results and areas to focus on for improvements. This may increase your long-term returns and reduce long-term risk, achieve higher consistency among your portfolios, and reduce tax consequences for your clients. Plus, it opens the door to more business growth.
 

Previously in the models-based practice series

Coming next in the series

Introduce Your Clients to Financial Models


For more on a models-based practice, LPL advisors can access the whitepaper, "A New Model for Today’s World,” posted to the Resource Center.

 


This material has been created for a Financial Professional audience. The content is designed for licensed financial professionals and may not include the level of detail, explanation and disclosure needed for a general audience to accurately evaluate the facts.