Model portfolios are in-demand products among financial advisors today: According to Morningstar’s 2025 Model Portfolio Landscape Report, new assets in third-party model portfolios totaled more than $645 billion at the end of March 2025, which is a 62% increase since Morningstar’s last survey of model portfolio assets in June 2023. Plenty of asset managers are joining the fray, offering new products to meet demand. Morningstar senior principal Jason Kephart recently discussed some notable launches in the evolving model portfolios landscape.

Download: Morningstar’s 2025 Model Portfolio Landscape Report

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Susan Dziubinski: What’s the allure of model portfolios for financial advisors?

Jason Kephart: Model portfolios are a useful option for advisors who’d rather spend less time thinking about stocks and bonds and more time helping clients with broader financial needs like retirement income or estate planning.

Dziubinski: What do most model portfolios provide?

Kephart: Most model portfolios are designed to provide a complete investment solution, typically offered in a range of risk profiles, from conservative to balanced to aggressive, to match different investor preferences. They usually include guidance on asset allocation, fund selection, and when to make tactical shifts from the long-term strategy, like taking advantage of market dips. Some models may also focus on a single asset class, like equities, fixed income, or alternatives.

Dziubinski: The model portfolio landscape continues to grow in terms of assets, but new product launches have slowed down, right?

Kephart: That’s right. It’s a sign that the model portfolio space is maturing. A few years ago, there was a flurry of launches as firms tested what would catch on with investors. Now, we’re seeing which ones have stuck. From 2017 to 2021, there were over 300 new model portfolios launched each year, on average. But from 2022 through May 2025, that number dropped to about half. In fact, in 2024, more model portfolios stopped reporting to Morningstar than were launched. The market is starting to consolidate.

Dziubinski: How difficult is it for an asset manager to launch or shut down a model portfolio—is it a similar set of hoops as launching or shuttering an ETF or mutual fund?

Kephart: Model portfolios are quicker and cheaper to launch than mutual funds or ETFs because they’re not actual products; they’re strategies. That means more options, but also more pressure on advisors and investors to separate the truly well-built models from the rest.

Dziubinski: Let’s talk about a couple of notable new launches in the past year or so, starting with the one from State Street.

Kephart: Tax-managed model portfolios aren’t new, but State Street is helping raise the bar. In September 2024, the firm launched its State Street Asset Allocation With Direct Indexing series. It is the first model portfolio reported to Morningstar to include a direct-indexing sleeve. In the Moderate portfolio, that sleeve makes up about one third of the allocation, with the rest in SPDR ETFs. While direct indexing can introduce more complexity and may require higher minimums or fees, its key advantage is improved tax efficiency through tax-loss harvesting. Research shows that, in the early years, investors may be able to offset around 2% of capital gains annually. That benefit typically tapers off over time as fewer losses remain to harvest.

Dziubinski: Vanguard has been active in the model portfolio space. Talk about its new products in fixed income.

Kephart: Vanguard has shifted its focus to fixed income in recent years. Fourteen of the last 16 US ETFs it launched have been bond ETFs, and its new model portfolios are a natural extension of that trend. In 2025, Vanguard introduced its first fixed-income model portfolios, the Risk Diversification and Total Return models in January, followed by the Active Total Return model in April. These models are built around the Vanguard Core Bond ETF VCRB and the Vanguard Core-Plus Bond ETF VPLS that launched in 2023. Vanguard Core Bond ETF serves as the anchor holding in the Risk Diversification and Total Return models, while Vanguard Core-Plus Bond ETF is the core position in the Active Total Return model.

Vanguard joins firms such as Pimco, Fidelity, and PGIM, which already offer stand-alone fixed-income models designed to highlight their best thinking for building bond portfolios. For some advisors, building fixed-income allocations can be more complex than constructing equity portfolios, so these portfolios may gain traction.

Dziubinski: Vanguard also “recycled” its tax-managed model portfolio. Explain that.

Kephart: Vanguard gave its tax-managed model series a makeover built around another new bond ETF launch. In February 2025, the original Vanguard Tax-Efficient series was essentially replaced with Vanguard Tax-Efficient ETF, starting a new performance track record. The updated series is slimmed down. It includes five model portfolios that span a range of risk tolerances, from conservative to aggressive. The previous version had 10 models that moved in 10-percentage-point equity increments, from 0% to 100%. The new lineup is built around Vanguard Intermediate-Term Tax-Exempt Bond ETF VTEI, which launched in 2024.

Dziubinski: What might we see in terms of new product development in the year or years ahead, Jason?

Kephart: Active bond and equity ETFs are the top products that leading model providers expect to include in their models over the next 36 months. One third of the firms surveyed expect to add interval funds that can own private assets to their models, so model portfolios are also participating in the trend toward mixing public and private assets.

Dziubinski: Which firms are launching model portfolios where public and private markets converge? And are model portfolios a good way to access private markets?

Kephart: Firms like BlackRock, Fidelity, and Franklin Templeton have recently announced model portfolios that include semiliquid funds, such as interval funds, with more expected to follow. For many advisors, these models could serve as a gateway to private markets. The usual benefits of model portfolios—guidance on asset allocation and manager selection—may be even more valuable when private investments are involved. These strategies can be complex and often lack the transparency advisors are used to. Models can help by taking on some of the heavy lifting, such as deciding where to make room in the portfolio, how much to allocate, and how to rebalance when liquidity is limited. Still, given the added complexity and fees, these models warrant closer scrutiny before jumping in.

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