The value of managed accounts

By Jayson Forrest - Managing Editor  - IMAP Perspectives

Franklin Templeton 's Managing Director Matt Harrison
IMAP's InvestTech 2020

Managed accounts are quickly emerging as one of the key delivery vehicles for advice. Brett Sanders, CEO of Philo Capital Advisers, and Zac Leman, BT Head of Managed Accounts, discussed some of the key issues facing the uptake of managed accounts by advisers at an IMAP InvestTech session moderated by Tom Schubert of Drummond Capital.

Increasingly, FASEA and the Best Interest Duty has become a significant consideration for all financial advisers. And because Best Interest Duty is a personal advice obligation, it falls upon the adviser to determine whether managed accounts are in the best interests of clients.

Speaking at the IMAP InvestTech 2020 virtual conference, Brett Sanders said the traditional advice model of advisers having to make an investment decision, then updating client portfolios and working through them serially, is a process that can take advisers weeks or even months to complete. However, under the FASEA obligation to treat all clients equitably and fairly, that old advice model no longer stacks up.

“In fact, that is the antithesis of treating people equally and fairly,” Sanders said. “You actually have to play favourites with deciding who you are going to transition first. We know that the effectiveness of investment decisions decays over time. So, the old way embeds unfairness.

“Therefore, for advisers to meet their FASEA obligations, managed accounts are essential, whether it’s an SMA or MDA.”

Sanders acknowledged that if an adviser is thinking about what’s in the best interests of their clients, they need to first consider whether they are better off having clients in a service where their investments are going to be rebalanced frequently and equitably.

“That feeds into the adviser’s judgement around best interests, and that’s a powerful factor that should be at the forefront of the adviser’s thinking when they are making that judgement.” 

Zac Leman added that a choice of investment solutions is also an important consideration in ensuring advisers meet their Best Interest Duty obligations.  

According to Leman, the FASEA obligations are underpinned by a number of ethical values. This means advisers are required to exercise due care and skill in the way they operate. This includes: how they engage with and understand their clients’ goals and objectives; scoping the advice; developing strategies; using products and service solutions; and ensuring that the strategy and product solutions they provide are fit for purpose and will improve the overall financial wellbeing of clients.

“Based on that, it’s generally not going to be feasible that one solution is going to meet the differing needs across all clients. Therefore, advisers are going to require a range of solutions. They are going to need choice,” Leman said.

Importantly, he added that advisers also needed to question whether they were appropriately skilled and resourced to deliver the required services to clients, such as investment management, in the event they were looking to manage their clients’ portfolios.

“If needed, advisers must be willing to engage with, and seek help from other professionals, such as asset consultants or investment managers, in order to help them with that process. That means they require flexibility in their offering that allows them to incorporate those other providers within their investment solution. And that’s where choice becomes important,” Leman said. “Choice allows you to embed those various solutions across your client base.” 

Brett Sanders Chief Executive - Philo Capital Advisers
Brett Sanders Chief Executive -  Philo Capital Advisers

Zac Leman Head of Managed Accounts - BT

Zac Leman is Head of Managed Accounts at BT.

If needed, advisers must be willing to engage with, and seek help from other professionals, such as asset consultants or investment managers, in order to help them with that process. That means they require flexibility in their offering that allows them to incorporate those other providers within their investment solution. And that’s where choice becomes important.

Zac Leman

Future developments in technology

As the Head of Managed Accounts at BT, Leman is at the coal-face of the development of managed account technology. And while he believed managed accounts were maturing, providing advisers with enhanced functionality, he said the future development of managed accounts will inevitably revolve around the better enablement of advisers, ensuring that technology delivers on the needs required by advice practices.

“At BT, we invest a lot of time working on innovation and new functionality. We do this in consultation with the industry,” Leman said.

As a result of that consultation, Leman is seeing improvements in technology in areas like customisation, allowing advisers to better customise and tailor portfolios at an individual client level to achieve specific outcomes, or to overlay specific practice level requirements.

He added that improvements in communication will also continue to feature in the development of managed accounts.

“Managed accounts have provided far greater transparency, but they haven’t necessarily delivered on the ability for managers and advisers to communicate effectively on portfolios and portfolio changes,” Leman said. “By leveraging digital communication, advisers and managers will be able to push relevant communications directly to investors.”

And what about digital enablement?

Leman predicted increase use of digital enablement for obtaining client consent for trading, corporate actions and managing regulatory obligations, particularly in respect to some of the Royal Commission recommendations.   

“We will also see further enhancements in the way that portfolios will allow external relationships to be embedded within them, like enabling asset consultants or investment managers to seamlessly integrate into the investment process, or for advisers to outsource a portion of their portfolios, allowing them to leverage the input from various experts within their overall investment management"

We will also see further enhancements in the way that portfolios will allow external relationships to be embedded within them, like enabling asset consultants or investment managers to seamlessly integrate into the investment process, or for advisers to outsource a portion of their portfolios, allowing them to leverage the input from various experts within their investment management

Zac Leman

Control of investment decisions

When it comes to advisers making investment decisions, Sanders believed the previous reluctance of many advisers to cede control of all investment decisions for their clients, in exchange for enhanced efficiency and improved outcomes offered by managed accounts, was changing.

He admitted to being surprised by how many advisers and advice practices now regarded a more dynamic approach to portfolio management through the use of managed accounts as a real benefit for themselves and their clients. He added that advisers had finally recognised the limitations on how much of the investment process they could cope with effectively.

“And that is particularly highlighted when you have fast moving markets, like we’ve had in the last few months. The amount of time you have to devote to assessing all the information and being able to make well-considered decisions is enormous,” Sanders said.

“You think about the moral imperative. You’re dealing with somebody’s life savings. Investment management is not a job for part-timers. If you’re dealing with somebody’s life savings, you want to make sure there are people who are absolutely focused full-time on thinking about portfolios and how they can deal with risks and opportunities as they arise.

You think about the moral imperative. You’re dealing with somebody’s life savings. Investment management is not a job for part-timers. If you’re dealing with somebody’s life savings, you want to make sure there are people who are absolutely focused full-time on thinking about portfolios and how they can deal with risks and opportunities as they arise.

Brett Sanders

Advisers Embracing Technology

Advisers have actually embraced that tenet far more strongly than I thought they would, and that’s because people are naturally nervous when they are moving to a new investment management methodology. But by and large, advisers have embraced managed accounts,” Sanders said.

However, he also identified an underlying issue with frontline advisers, with some questioning their role in the advice process if they are not involved in picking the portfolio from an APL for their clients.

“That’s actually a very significant question, which doesn’t have to be answered the same way for every adviser,” Sanders said.

“That’s because there is still room for advisers to have plenty of conversations about investments with their clients, as well as concentrate on their strategic advice and client servicing, as part of their overall value proposition. In fact, there are many ways advisers can deliver value to their clients.”

The Button on the left takes you to IMAP's video library

Select InvtstTech Sessions one and fast forward to time counter 34.25 for the stqrt of the 2nd part of day one's program Spoilt for Choice in Managed Accounts- Panel Discussion with Brett Sanders - Philo and Zac Leman - BT, moderated by Tom Schubert - Drummond Capital Partners

Brett Sanders is Chief Executive at Philo Capital Advisers and Zac Leman is Head of Managed Accounts at BT.

Disclaimer: Toby Potter, Chair of IMAP, is a director and shareholder of Philo Capital Advisers.

 

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