Feature: The evolution of managed accounts


By Sarah Kendell

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It’s rare to have a discussion with a major advice group, fund manager or platform provider these days without the words ‘managed accounts’ being uttered.

Billed as the middle way between a portfolio of direct shares, which can be difficult for an adviser juggling many clients to manage, and managed funds, which are falling out of favour with some clients due to their lack of transparency, managed accounts offer the benefits of direct ownership of securities with an overlay of professional management and administration.

Improving technology, falling costs and the effects of the Future of Financial Advice reforms have finally pushed managed accounts, which have been somewhat dormant in Australia compared to other advice markets globally, to a tipping point in the industry, and they have reached the mainstream with the launch of managed accounts on BT’s Panorama platform, Praemium commercial director Andrew Varlamos says.

“Panorama’s inclusion of managed accounts really gives a mass-market validation to something which has been pursued by smaller advice businesses for many years,” Varlamos says.

“I think we are now at a tipping point where advisers will with increasing momentum move away from the old-style wrap platform and towards managed accounts.”

Andrew Alcock, managing director of the Hub24 managed portfolio platform, acknowledges “there has been a very rapid growing demand from financial advisers and SMSFs (self-managed superannuation funds) over the last two years for this product structure”.

Alcock explains the flexibility of managed accounts from a tax perspective sets them apart as an investment solution for advice clients, particularly when used in concert with some of the new technological features platforms are providing.

“One of the key advantages when using managed accounts on some platforms is the ability to quickly and easily model the tax effects of any changes before they are effected, thereby allowing advisers to also select from investments based on the likely CGT (capital gains tax) outcomes,” he says.

“A further technological feature of some platforms is the ability to treat tax parcels discreetly, and to select and transact those parcels automatically to achieve the desired tax effect of an asset purchase or sale, irrespective of where that parcel was derived, either via an adviser decision or that of a portfolio manager.”

He nominates efficient management of corporate actions as another advantage when using separately managed accounts (SMA), which place investment management decisions with a professional portfolio manager while the client retains beneficial ownership of the stocks.

This is echoed by Sedat Papagan, a senior financial planner at GHR Financial Planning, in a recent Macquarie Bank white paper on SMAs.

“It could take two or three days [for an adviser] to generate a record of advice to sell and move a single asset because the risk-return trade-off has changed – and we have to do that across hundreds of clients and numerous assets,” Papagan says.

“SMAs change the game. They give everyone access to institutional-grade responsiveness.”

However, the combination of transparency of ownership for the client and outsourcing investment decisions to an external manager can backfire, which is why in some instances individually managed accounts (IMA), which allow for a greater degree of customisation, can be more beneficial, Implemented Portfolios founder Santi Burridge says.

“Let’s be clear, an SMA is a transparent managed fund, and though this may sound enticing, imagine for one moment what happens when the client can see trading within their portfolio and starts to question the fund manager’s decisions,” Burridge says.

“In contrast, IMAs are not a product – IMAs are a service to the industry that allows the adviser and the client to tailor and control every level of the investment journey.”

Alcock agrees more customisation is the way of the future in managed accounts as they move increasingly into the mainstream and the infrastructure around them improves to counteract some of the limitations of the SMA structure in particular.

“Further developments in technology will allow mass customisation, individual tilts and stock exclusions at the level of each client,” he says.

“These changes will provide more client-focused outcomes for investors and greater efficiencies for advisers in dealing with unique client requirements.”

Given the transparency and efficiency aspects make managed accounts a great fit for SMSFs, Varlamos also expects managed account technology to evolve in terms of the ways a client’s adviser and accountant can collaborate.

“This is what Praemium has been working on – adding functionality to the core technology to keep the accountant and the adviser on the same page rather than all the investment information being looked after over here by the adviser, and all the fund administration information being looked after over there by the accountant,” he says.

Ultimately, given how fast technology as a whole is evolving, particularly within the robo-advice space, managed accounts are the solution that makes the most sense for the vast majority of advisers wanting to evolve their business model.

“Just like we have seen in the United States, I expect advisers to take control of the investment journey for their clients, build scalable, consistent and individualised client experiences, harness technology and for the first time take true control over their business,” Burridge says.

“Managed accounts will dominate as they are simply a better structure within which to hold an asset compared to a managed fund.”

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