Over the last decade, managed accounts have received increased interest from advisers as well as from investors. Some firms are looking at managed accounts solutions to not only help them build more efficient businesses but to provide a better outcome for their clients.
It’s critical that we always start from the client first; we should not be introducing anything into the business if it’s not going to benefit the client and be in their best interests – be that better outcomes, saving of time or cost, or access to investments and services they wouldn’t otherwise have.
To help you better understand how managed accounts solutions can be great for your clients, here are some benefits you should consider:
1. Access
A client can get access to a growing number of professionally managed models.
2. Beneficial ownership
Your clients hold the beneficial ownership in the underlying asset when they invest through a managed account structure. For instance, in a model which holds direct equities, the investor holds the beneficial ownership in the underlying stocks.
In our experience, clients tend to have a greater connection with their investments where they hold the underlying investments directly, as opposed to owning a unit in a Managed Fund. It doesn’t follow that all investments in a model should be held directly, as there are other far more important considerations – like diversification and liquidity – that determine portfolio construction.
3. Greater transparency and customisation
Added transparency and an ability to customise portfolios is what makes managed accounts appealing to investors.
By holding the beneficial ownership in the underlying assets, and through improved reporting offered by the latest technology developments in platforms, investors have a much greater level of transparency of the assets and investments they hold.
Portfolios can be customised to meet clients’ needs. For instance, you can apply certain filters to a model portfolio that might include an ethical filter. You can also exclude (or ‘block out’) a security if your client is prohibited from investing in that company, or they may already hold a substantial exposure to that security. Equally, you can replace that security with an alternative from the same sector – for example, swapping a bank stock that can’t be held with another bank.
4. Tax management
Managed accounts solutions can help clients better manage their taxation outcomes.
A good example with a portfolio of Australian equities are franking credits. In a managed account, franking credits flow through to the investor when the dividend is paid, because they are the beneficial owner of those securities. Whereas in a unit trust, franking credits don’t flow through until distributions are made and often not until later in the financial year.
Another is the timing of transactions that give rise to capital gains or losses. A feature of individually managed accounts (IMAs) is that the individual taxation position of an investor can be considered as part of the broader buy, sell or hold decision of an investment. For instance, some clients have tax losses (current year or carried forward) and for them, it may make sense to realise capital gains. Others may prefer to defer capital gains, and hence the sale of an investment, to a future period. While some separately managed accounts (SMAs) also allow a sale to be excluded from a client’s holdings, this isn’t common practice as it can lead to deviations of client’s holding to the model. Professional investment managers seldom let taxation implications dictate the investment decisions they take, but nonetheless, greater flexibility of tax management is a feature of managed accounts.
5. Transaction costs
The ability to net off buy / sell positions and trades, particularly at rebalancing, means that transaction costs can be more effectively managed and lower in many cases through a managed accounts structure.
Clearly, managed accounts solutions can offer advantages for your clients.
If you are interested to learn more about our managed accounts services, feel free to contact us here.
