Lack of control in SMAs breeds client panic


By Sarah Kendell

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While separately managed accounts (SMA) are shaping up to be one of the biggest product trends in the advice space this year, history shows a lack of control over the underlying assets could fracture the relationship between clients and advisers.

In an interview with financialobserver, Implemented Portfolios founder Santi Burridge said while SMAs offered advantages such as beneficial ownership of assets and transparency of holdings, clients could ultimately react badly when they did not understand, and could not control, movements in the portfolio.

“It’s very hard to give them that transparency without control – in times of market disruption, for instance, a client will ring up and say: ‘Why did you buy BHP yesterday when it went down 5 per cent today?’” Burridge said.

“The adviser will say: ‘Well I didn’t buy it, my fund manager did.’

“Suddenly you are now in a position where you are having a conversation with a client about something you don’t control, which is not a very good business model.”

He said while managed accounts as a whole were far superior to managed funds, individually managed accounts (IMA) gave the adviser and client more freedom to tailor a portfolio to their own needs and preferences.

“IMAs treat the adviser and client as individuals at every level – if they don’t want to own BHP, they don’t have to, or if they want to own more of BHP, they can,” he pointed out.

The ability to control elements such as implementation of new money, tax outcomes and portfolio weightings had resulted in IMAs far outstripping SMAs in terms of popularity in overseas markets, he said.

“IMAs are by far the biggest investment structure globally, they have just not come here yet,” he said.

“In the US, SMAs have lost 16 per cent market share in the last four years, which is to my point that the model is ultimately not going to work – it’s not enough for the adviser and client in the long term.”

The superiority of IMAs was reflected in the strong take-up the group had experienced from the launch of its IMA service with independent licensee My Planner in September last year.

“We on-boarded 30 new practices in the last quarter, so we are up to about 60 per cent of practices within the My Planner licensee that have signed up for the service,” Burridge said.

“The take-up has been really good at a practice level and we are working closely with My Planner and their advisers to look at where it makes sense for the clients.”

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