There’s almost not a day that goes by without someone within the industry, in the trade media or at conferences, talking about Managed Accounts and what it could do for your business. Not surprisingly, some of you may be a little confused about what people mean when they mention Managed Accounts or the many acronyms and names that get tossed around, making it all a tad confusing.
While there are different types of managed account structures, some with distinctive working features and functions, they stem from a pretty similar overarching concept and objective. As mentioned on our previous blog, Managed Accounts are just an evolution of unitised trust (“unit trust”) managed funds or ‘fund of funds’ that we’ve all been accustomed to for many years now. Essentially, they enable retail investors to hold the beneficial ownership in the underlying assets or stocks that may be in a portfolio, from which emerges several features and benefits.
As an adviser or as a principal of an advisory firm, you might be wondering what Managed Accounts can do for your business? What you really need to ask yourself first is whether a Managed Account is right for your clients, which we discussed on our blog “Benefits of Managed Account Solutions for your client“.
After identifying the advantages for the investors, here are now the top 3 benefits of Managed Accounts for your business.
1. Managed Accounts can offer efficiency and effectiveness
When you look at the way many advisers oversee or manage clients’ investments within traditional portfolio structures, the amount of time and effort required to execute changes to clients’ portfolios can be overwhelming and very inefficient. When portfolios need to be rebalanced for instance, advisers and their teams can spend countless hours manually reviewing portfolios, preparing records of advice (ROAs) and instigating actions, often within tight timeframes or deadlines.
With a managed account structure, this process is a lot more efficient as changes to portfolios can be executed in a timelier manner. This is because the client has agreed, ahead of time, that changes can be made to their portfolio within pre-determined parameters, understood and agreed to by the client before they invest within the managed account. In effect, the client has given authority or ‘discretion’ to the adviser or model manager to actively manage their portfolio within a set of parameters. Likewise, when you’re executing changes in the model and across several clients, the latest developments in platform technology mean that changes can be made across numerous portfolios at the press of a button.
In fact, when you have a Managed Discretionary Account set up, the client has already agreed that you’re going to act for them within certain parameters.
These parameters are explained and disclosed to clients, in detail, either in the PDS (in the case of an SMA) or within the MDA licence authority, where a Managed Discretionary Account is being utilised.
2. Building a deeper investment and portfolio management service.
You can start to deliver a much richer investment and portfolio service to your clients, in the way you advise and update them on their portfolios and investments. We’ve worked with firms to improve their communication materials and reporting to increase the level of transparency and connection clients have with their investments. In our experience, regular updates can include market commentaries, explaining why asset class exposures have changed, or why a professional manager has taken a certain position in an investment or security.
Now, if you’re using someone else’s Managed Account, they will typically do most of this for you, but if you create your own managed account service – a private label for instance – then you do need to work with your strategic partners to source and provide this support to your clients.
In our experience, clients who have engaged a financial adviser or professional wealth manager still like to be informed and involved with their financial affairs. Even where they have handed ‘discretion’ over to a professional, they still want to know what’s going on and understand why certain things have happened. The more relevant and timely the information they receive, the better their experience and the more engaged they become.
Build this communication off a consistent and repeatable technology platform, and you gain further efficiencies in the back office and free yourself up so you can look out for your clients’ other advice needs.
3. An opportunity to grow your revenues and build greater capital value in your business.
This depends a lot on the role you’re playing. When Managed Accounts were first promoted around the industry, some advisers saw it as a quick way of just (dare I say) “clipping” another part of the value chain by charging a fee or margin – when they weren’t doing anything extra for that fee. We believe this is problematic and not sustainable.
On the other hand, we have worked with firms who create a customised solution for their clients which delivers specific and quantifiable benefits to their clients. These are typically “private label” managed account services where the advisory firm is playing a significant role in the creation, management, oversight and delivery of the managed accounts services. While the wealth management firm or adviser doesn’t purport to do everything themselves, in these examples, they take responsibility for key aspects of the service like forming and operating the investment committee, ensuring they source and appoint appropriately qualified, experienced and independent members of that committee.
These firms design and create their model portfolios with the input of a professionally qualified independent asset consultant, who reports to the investment committee. Other features and benefits of running such a service, backed by independent and robust framework and processes, ultimately flow to clients and come at a cost to the advisory firm. Hence the rationale and justification for earning a market competitive fee, which ensures that the overall offering is in the clients best interest.
Over time, this can lead to an increase in revenues, which in turn is likely to lead to an increase in the capital value of the firm, particularly where that also leads to an increase in profitability.
All in all, Managed Accounts offer a lot of opportunities to enhance your clients’ experience, obtain greater efficiencies for your business while creating robust execution process.
You can email us or call our office (02 8199 3499) if you want to learn more about managed accounts.
