By Jayson Forrest
Eleanor Menniti (Lonsec), Uwe Helmes (BlackRock), and Julian Lefcovitch (North) explore the challenges and benefits of bringing a scaleable custom managed portfolio solution to market.
In what is believed to be an Australian first, three organisations — Lonsec, BlackRock, and AMP/North — have partnered together to introduce a new category of managed portfolio solutions, making it easier for more advice practices to tailor a managed portfolio at scale.
According to Eleanor Menniti — Associate Portfolio Manager, Multi-Asset Portfolios at Lonsec — there are currently two ways to access managed accounts in the market: off-the-shelf or fully tailored/bespoke managed accounts.
“Both types of managed accounts offer attractive benefits,” says Eleanor. “Off-the-shelf managed accounts are simple, they’re outsourced, and are very efficient for an advice practice to implement. While the fully tailored option provides greater control and flexibility, and allows the structure to be more customised for the needs of the practice.”
Eleanor Menniti
Lonsec
Julian Lefcovitch
North
Uwe Helmes, CFA
BlackRock Australasia
Technology is playing a big part in addressing the scale barrier by helping us lower the cost to serve. We’ve spoken to a number of advice practices that might have funds under management (FUM) of $50-$150 million but have wanted a tailored managed portfolio solution. They want a unique investment value proposition with a degree of control over their portfolios, but haven’t had the scale to do that. That’s now possible with this innovative product
Speaking at the IMAP Advice in Action 2024 conference in Sydney, Eleanor says the transparency and usefulness of the managed account structure has been reflected in how quickly the managed accounts industry has grown, with Investment Trends research revealing that adviser usage of managed accounts increased to 56 per cent in 2023 — up from 16 per cent in 2012.
However, while managed accounts FUM continues to increase, the number of advisers using this structure has plateaued in 2024. She attributes this levelling off to a number of reasons, including where off-the-shelf solutions are deemed not suitable for some advice practices due to manager incumbency or preferences within existing portfolios, and the lack of scale required to access fully tailored managed portfolios.
In addressing these barriers to greater adoption of managed accounts by advisers, Lonsec teamed up with BlackRock and AMP to develop a third category of managed accounts, sitting between off-the-shelf and fully tailored (private label) managed accounts.
Eleanor refers to this third category as ‘tailored/customised portfolios at scale’ (or ‘models with tailoring’), which uses tech enabled scalable customisation to bring together elements of both off-the-shelf and fully tailored managed accounts. She believes this third category will address a number of areas preventing further adviser take up of managed accounts.
When we previously looked at managed accounts, many sophisticated tools simply didn’t work, because managed accounts are offered through platforms. But by using Aladdin, we’ve managed to bring the benefits of the AMP/North platform, along with all the benefits of portfolio management via Aladdin to the wealth market in Australia. This allows us to manage portfolios at scale.”
An industry first
Essentially, this new category of tailored managed portfolio solutions (or models with tailoring) allow advisers to tailor elements of a model portfolio, but still providing them with access to portfolio performance tracking and dedicated content support. This allows them to monitor their holdings and investment performance, while accessing trade notices and market commentaries that can be white-labelled for clients.
Underpinning these tailored portfolios is BlackRock’s proprietary technology — Aladdin — a portfolio management platform that provides investment professionals with a streamlined way to view and manage daily investments, while harnessing Lonsec’s investment manager research and manager selection capabilities to deliver portfolio customisation at scale to advice practices.
Eleanor believes this managed portfolio solution is the answer for advice practices wanting to create tailored portfolios that are cost-efficient, but which have been out of reach previously. Julian Lefcovitch — Senior Product Manager, Managed Portfolios at North — agrees, adding this solution addresses the scale barrier that has prevented more advice practices from taking up managed accounts.
“Technology is playing a big part in addressing the scale barrier by helping us lower the cost to serve,” says Julian. “We’ve spoken to a number of advice practices that might have funds under management (FUM) of $50-$150 million but have wanted a tailored managed portfolio solution. They want a unique investment value proposition with a degree of control over their portfolios, but haven’t had the scale to do that. That’s now possible with this innovative product.”
Uwe Helmes, CFA — Lead Strategist, Multi-Asset Strategies and Solutions Group at BlackRock Australasia — agrees that technology is the key to addressing the issue of scale in managed accounts. He believes Aladdin will allow advice businesses to customise portfolios at scale.
According to Uwe, Aladdin solves many of the challenges in the customisation of managed account portfolios.
“When we previously looked at managed accounts, many sophisticated tools simply didn’t work, because managed accounts are offered through platforms. But by using Aladdin, we’ve managed to bring the benefits of the AMP/North platform, along with all the benefits of portfolio management via Aladdin to the wealth market in Australia,” says Uwe.
“This allows us to manage portfolios at scale. So, whether we manage 10, 100 or 1,000 portfolios, it doesn’t really matter because we get the scale through using this technology. The technology also helps to streamline and improve the compliance and governance process, making it more efficient and cost-effective for advisers to use.”
Essentially, Aladdin is enabling advisers to transform those off-the-shelf portfolios into a tailored portfolio — you could call them a ‘child’ portfolio — which are separate products on the platform and different from the ‘parent’ portfolios, but are still very much tied to the parent portfolios in terms of guardrails around risk and return, as well as measuring tracking error.”
Efficiency in practice
So, how does this solution work in practice?
The key benefit of this solution is to enable advisers to tailor portfolios at scale. In collaboration with AMP and Lonsec, BlackRock has designed a set of portfolios it believes are best-of-breed. However, by using the Aladdin technology, advisers are able to tailor parts of these model portfolios to their needs.
“Aladdin can track and do much of the analysis to ensure that the tailored portfolio essentially behaves in line with the model or ‘parent’ portfolio, and all within guardrails,” says Uwe. “That means you have one umbrella PDS, which captures all the tailored portfolios beneath it. This unlocks a lot of scale for advice practices and licensees.”
And from a reporting perspective, BlackRock has developed a digital portal that advisers can access. The portal provides access to performance reports, market and sector commentary, and performance comparisons, and all with the ability to create white label reports for clients that can be badged with the advice practice’s logo.
According to Eleanor, BlackRock and Lonsec work together with a licensee, such as AMP, to determine their ‘parent’ portfolio. That may mean using BlackRock’s asset allocation, risk and portfolio management technology, combined with Lonsec’s independent manager research and selection capabilities to devise parent portfolios with the licensee.
“That can also include setting the asset allocation, portfolio objectives, investment philosophy, and agreeing on the guardrails around those parameters, which goes into the PDS,” says Eleanor.
From there, the portfolio gets launched onto a platform, like North, and can be bought off-the-shelf by an advice group — if they like the inputs from BlackRock and Lonsec, with the comfort of knowing there has been oversight by a licensee.
“Essentially, Aladdin is enabling advisers to transform those off-the-shelf portfolios into a tailored portfolio — you could call them a ‘child’ portfolio — which are separate products on the platform and different from the ‘parent’ portfolios, but are still very much tied to the parent portfolios in terms of guardrails around risk and return, as well as measuring tracking error,” says Eleanor.
“Once the portfolio is launched, there is an investment committee supporting the process, and there is still just one PDS required, so no separate PDS needs to be launched, making this solution very efficient for an advice group. They have a tailored portfolio that is their own but is still very much off-the-shelf in its key elements.”
Uwe believes that in the context of scale, the minimum size for an advice practice to make this type of solution financially viable is around $30-$50 million, compared to upwards of $200 million for a fully bespoke portfolio. This brings the tailored managed portfolio solution (or models with tailoring) in reach of most advice practices that otherwise would not have been able to access a tailored solution for their clients.
Aladdin can track and do much of the analysis to ensure that the tailored portfolio essentially behaves in line with the model or ‘parent’ portfolio, and all within guardrails. That means you have one umbrella PDS, which captures all the tailored portfolios beneath it. This unlocks a lot of scale for advice practices and licensees
Benefits for practices and licensees
According to Eleanor, the overwhelming benefit of scaled customised portfolios is to encourage more of the advice industry to take up managed accounts. She believes a relationship between an advice group and the model manager, like Lonsec, is reassuring in times of market dislocation when adjustments to portfolios are required. As she says: “It’s beneficial to have a sounding board to bounce off.”
Eleanor adds: “Being able to draw on the experience and expertise of a trusted partner that is able to implement changes quickly, is a huge value-add to both advisers and their clients. Having that level of personalised service and reporting is a definite benefit to advice practices and licensees.”
It’s a view shared by Uwe. “Having three major organisations — BlackRock, Lonsec, and AMP/North —partner together to offer this solution is quite unique and innovative. As an advice practice, this partnership allows you to get the best of all three worlds. You get the support from an independent research house, you get the benefits from a licensee and platform provider, and the skills from a global asset manager. All three organisations combine their expertise to support the client journey.
“We have a combined experience of well over 30 years in managing SMAs, so we’ve learnt a fair bit over that time. SMAs are more than an investment solution for advice practices, they’re a business solution.”
About
Uwe Helmes, CFA is Lead Strategist, Multi-Asset Strategies and Solutions Group at BlackRock Australasia; and
Eleanor Menniti is Associate Portfolio Manager, Multi-Asset Portfolios at Lonsec.
They spoke on ‘Portfolio customisation — The problem, the solution, and the benefits’ at the IMAP Advice in Action 2024 conference in Sydney.
The session was moderated by Julian Lefcovitch — Senior Product Manager, Managed Portfolios at North