Running a managed accounts program is not straightforward, with many different components that licensees and advisers need to be aware of. John Burton (Lonsec), Mark Smith (Elston), and David Hutchison (North) discuss strategies for developing and overseeing a successful managed accounts program.

For advice businesses preferring a more tailored solution for their managed account offering (instead of an off-the-shelf product), their reasons for doing so can be varied — ranging from client demand for customisation, through to building scale, and enhancing the service and value proposition of the business.

In a presentation on ‘Managing the program’, which was part of a broader IMAP Specialist Series focused on ‘Putting a managed account program in place’, John Burton — Head of Sales at Lonsec — says regardless of the reasons why an advice business may choose to go down the tailored managed accounts path, the ultimate success for any business with a managed accounts solution — whether tailored or off-the-shelf — is due to: a commitment to planning and implementation, business adjustment, and the focused execution of managed accounts.

“A business must be fully committed to rolling out a managed accounts program. It needs to be clear on its business outcomes, and the entire team needs to be engaged and confident in the process and benefits of change,” says John.

“As a key part of your strategy, you need to have a plan for the implementation of managed accounts. Importantly, you need to make deliberate modifications to your business, which includes adjusting your client value proposition, having a written investment philosophy that’s aligned to your product, and engage in clear and consistent client conversations.

“You also need to be focused in your execution of managed accounts, which includes adviser education and training, as well as organise collateral for client communication and education. Importantly, you need to ensure there is in-house accountability to ensure full adoption of the managed account.”

Mark Smith — Head of Adviser Services at Elston Asset Management — agrees that the underlying motivations for advice practices seeking a tailored managed account solution are varied. To ensure that a tailored solution is appropriate for them, he believes it’s important that advisers firstly understand and can clearly articulate what their investment philosophy is.

“Advice businesses often go down the tailored path because they can’t find an off-the-shelf solution that aligns with their investment philosophy,” says Mark. “Being able to tailor strategic asset allocation (SAA) to a business’s particular needs is important, which is not always available in the solution you’re looking for. There’s also branding and price, which can lead a business down the tailored path.”

However, probably the most important consideration for businesses deciding between tailored and off-the-shelf managed account solutions is the extent to which the business wants to be involved in the investment management piece.

“For some advisers, strategic advice is their core, while for others their value proposition has been built around investment management. So, you need to explore the motivations and understand the key drivers for a business wanting to go down the tailored route,” says Mark. “Make sure you have thought clearly about each of the options available, and their respective pros and cons.”

John adds that with industry data showing that the average advice firm in Australia accounts for about $225 million in funds under advice, advice businesses are typically getting larger, which does make tailoring attractive.

“Advisers want to tailor strategies for their client base,” he says. “They want to improve risk management and want control of the portfolio, but without the execution. This makes a tailored solution ideal for these advisers.”

The success of implementing any managed accounts program — whether tailored or off-the-shelf — depends heavily on adviser engagement and buy-in to the solution. As John says, it’s one of the key pillars of successfully adopting managed accounts. However, he acknowledges that adviser buy-in can be difficult, particularly in larger practices with many advisers and multiple solutions available.

Ask David how long it takes to embed a managed accounts program in an advice business, and he believes it should only take between 12-18 months, although he concedes that on average, most programs take about three years to be fully embedded. He attributes this to practices not having prepared enough for the change management process.

“I’ve seen practices that have been fully allocated in 12 months, and others that have taken between three and five years. I’ve seen businesses with hundreds of millions in funds under management but only have a minor allocation to managed accounts because they spent too much time on the investment component, and forgot about making the rubber hit the road on the implementation and change management side,” says David.

John believes it’s important that advice firms view managed accounts as a business solution they can support, rather than just the next product to use. The entire advice team — advisers and back-office staff — need to be educated about the efficiencies and benefits of managed accounts, which comes down to leadership within the business. This ensures that the entire team is brought along on the journey together

Mark adds that much of the industry narrative about managed accounts over the last 5-10 years has focused on adviser efficiencies and benefits. However, he believes that for those advisers who have yet to be convinced about managed accounts, this narrative should instead focus on client benefits from a best interest duty perspective.

He explains: “No client wants to be client 199 in a Record of Advice (ROA) process that could take three or four months to complete. So, being able to implement investment decisions quickly and treat all clients equitably is powerful, as is the messaging around transparency and being clear about what’s happening with a client’s capital. These are all great client benefits, which makes the managed accounts structure a ‘no-brainer’.”