Managed accounts are not new, they have existed in the US for many decades and have been spoken about and offered in various guises in Australia for the better part of 10 years.
Investment Trends research shows that in 2014 18 per cent of planners used SMA’s which is the same number as in 2011 so there has been no increase over this time. However the same research indicates that the percentage of planners intending to start using SMA’s has increased from 10 per cent last year to 17 per cent this year.
So why all of a sudden are managed accounts back in the spotlight? And why will the current focus on this seemingly old product result in a different outcome to the lack lustre adoption and success of the past?
Managed accounts come in many different shapes and sizes and are promoted under a variety of names which typically reflect the legal structure they are governed by. The most common structures include separately managed accounts (SMAs), managed discretionary accounts (MDAs) or individually managed accounts (IMAs). For the purpose of this article I will refer to all structures simply as “Managed Accounts”.
A managed account allows an investor the ability to invest into one or more professionally managed model portfolios which are then actively rebalanced and invested based on the decisions of the chosen investment manager. Models may comprise of domestic equities, ETFs, managed funds, international equities or a combination of all asset types.
While managed accounts share certain characteristics of managed funds they differ dramatically in the following ways:
- Assets in a managed accounts are held directly (or beneficially) by the investor providing greater transparency.
- Investors (and their advisers) can set a multitude of investment parameters and rules around how their portfolio is managed including investment exclusions and substitutions, trade sizes and tax preferences.
- Investors do not buy into any embedded tax liability that may exist in a pooled managed fund.
Although the above is only a high level overview, the benefits of a managed account to an investor and adviser start to become clearer.
Automation, access to professional managers and greater control of tax and personal preferences create a solid foundation, but the real driving force behind the resurgence of managed accounts is a combination of market, technology and industry forces.
To date the providers of managed accounts have been niche providers with limited access to capital and distribution networks. However there are a number of mainstream platforms who are increasingly providing capabilities to integrate managed accounts into their broader platform offerings. The integration into these mainstream platforms and advances in technology are a key shift and one which will support awareness, understanding and thus greater adoption as advisers seek to simplify their back office and reduce the number of suppliers they deal with.
This coupled with the ability for dealer groups and advisers to take on the role of investment manager is also an important evolution and, where they possess the required investment skills, process and compliance regimes to run portfolios of their own, can help advisers deliver a truly customised value proposition to their clients, and not to mention also creating a recurring revenue source that is FOFA friendly.
The benefits of managed accounts to the investor have always been evident, but their access has been limited to niche providers and a select number of advisers. Now with advances in technology and with mainstream platform providers focusing their energies on managed accounts, it is an appropriate time for advisers to re-consider them for their own business.
Matth Heine joined netwealth in July 2001. He has been instrumental in the development of the distribution, branding and marketing of netwealth since that time. Matt’s role and experience in the sales and marketing field brings a “hands on” understanding of the industry and client base to the Board. He had previously worked at Heine Management Limited. Matt is a member of netwealth’s Investment Committees.
Matt is also a Guardian in the No More Practice Investment Series and is featured in the No More Practice Money Masters Series.
