Relationship Manager | Associate Director
In an age of ever changing regulatory and compliance environment, and increasing pressure to deliver quality financial product advice to clients, Managed Accounts have become increasingly popular.
According to findings from the recent Netwealth AdviceTech Report indicated that 35% of advisers already using them today, with 57% of advisers planning to adopt a managed account solution by 2019. Furthermore, over the next three years, funds under management is expected to double from roughly $30 billion to $60 billion, according to research from Morgan Stanley.
There are two main types of managed accounts solutions:
An SMA is a portfolio of direct stocks managed on behalf of investors where each investor is the beneficial owner of the investments within the account. Irrespective of capital loss or gain position or taxation consequences, any changes to the portfolio reflects on the portfolio of every investor.
An IMA is a direct equities portfolio managed by a portfolio manager where the manager looks separately into the needs of each investor. In an IMA capital gain and loss positions are taken into account, incorporating tax implications on the overall portfolio for that client and on each stock.
|Separately managed accounts||Individually managed accounts|
|Financial product||Financial service|
|Clients has beneficial ownership of shares||Client has beneficial ownership of shares|
|Client can tailor SMA to have more tax-effective portfolio||Tailored to suit the client’s individual tax profile|
|Made up of ‘model portfolios’||Made up of individual shares|
|Does not require individual transaction reports||Full transaction reports required|
|No ASIC requirement for personal equities advice||Adviser must provide personal equities advice and therefore needs accreditation|
|No ASIC requirement for continuing personal advice||Every 13 months or less, the adviser must confirm that advice remains in the best interest of client (subject to legislative changes)|
Source: Direct Portfolio Services, Financial Standard, iMap.
When looking at the benefits of managed accounts, everything is centred around the client and what they get out of it. Let’s put that aside for now and talk about the key benefits for you as an adviser. What does managed accounts mean for you and the value you provide to your offering.
With MAs, you have the potential to build a highly diverse portfolio that encompasses more than just your traditional listed investments. They offer the advantages of dynamic asset allocation and can also include other listed securities like bonds, exchange traded bonds, hybrids, unlisted funds as well as units and exchange traded funds. This allows you to take advantage of emerging opportunities and manage risk.
Both you and your client can view the underlying securities and track the performance of the holdings. By monitoring the portfolios on a daily basis and giving clients the ability to see exactly which assets comprise the managed portfolio and what’s going on, you can increase the opportunities to discuss the portfolio, increasing engagement enrich the client/adviser relationship.
Managed accounts reduce the buying/selling investments process, compliance tasks and administrative work your team have to do. This streamlining of administrative operations means you are able to run a more efficient practice, bringing down costs for both you and the client. As a result, you free up and shift more of your resources to supporting client management and value-adding activities. MAs enable lower direct trading costs and are more reliably managed, leading to better investment outcomes over time.
Research by the Association of Financial Advisers, indicates that 82% of adviser clients place greatest importance on their adviser’s ability to build rapport, show their concern for the client and understand the client’s needs (Hub 24, 2017). MAs allow advisers to address this need, opening up the pathway for advisers to shift their investment communication away from being administration focussed to a more educational focussed engagement. Basically, there will be less requesting from the client and more providing to the client such as updating the client on changes, zeroing in on the why changes are happening, connecting results to the client’s financial situation and keep each client better informed, often with near-real time data.
Both SMAs and IMAs typically have strong integration functionality when it comes to pushing investment transaction and holding data into accounting and financial planning software packages. This is especially important with SMSFs as it can eliminate manual data entry and provide better outcomes from both the adviser and client through cost and time savings.
We’ve teamed up with Elston to bring advisers an integrated offering combining the power and efficiency of their managed account solutions with our award winning SMSF administration services.
Our partner solution enables advisers utilising Elston’s managed accounts to deliver an SMSF administration service to their clients at a very low cost with no compromise on efficiency or quality.
To discover details about this powerful integrated offering, contact us today.