Managed Accounts programs have added over $100 billion in assets in the last 4 years to reach more than $232 billion at the end of 2024 – a sure sign that managed accounts are a mainstream part of many advice groups' service offering.
IMAP has observed in a number of advice groups after they have operated a managed account program for a few years, that the groups come to the view that it is a good idea to review their program to assess whether or not the program is still:
- meeting the needs and expectations of their clients?
and, - delivering the features and outcomes that advisers, the practice and licensee need?
If the answer to each of these questions is “Yes” then you made a good choice and implemented it well.
But, after 3 or 4 years of a managed account program, often the answer is “Not as well as we hoped”.
Below we examine a number of key issues that advisers raise in IMAP discussions and then we discuss how these issues can be addressed.
Article written by IMAP's team
Is it working for Investors?
Performance:
Compared to the alternatives available on your preferred platforms, are the results in each type of portfolio up to par?
The risk of relatively poor performance is obviously client dissatisfaction, but potentially also ASIC asking formally why advisers haven’t addressed investment underperformance in their continuing advice.
Whole of Portfolio
Often a managed account program starts with a choice of 4 models, but clients don’t always match a “Four sizes fits all”.
This is the Industry Fund view of investing, and while it suits well enough for young accumulators, is far less effective at meeting the needs of groups like retirees, blended families, wealthier investors with established portfolios or wholesale investors.
The effect of this can be that the managed account program is only catering to a portion of clients’ investment assets.
This can create a number of problems, such as unbalanced asset allocation across the whole client portfolio, which is especially evident when markets are as volatile as they are now.
The situation can also result in a lot of work for advisers in dealing with the “other” investment assets that are outside of the managed account.
Philosophy
Many investors come to the advice relationship with clear preferences – for responsible investments, or predilection for property, or a risk appetite that encompasses private markets.
Is it working for Advisers, Practices and Licensees?
Multi platform
The upheaval in the advice world with mergers and adviser movements has meant that even single office, self licensed advisers have clients on multiple platforms. But as the managed account program is only available on one platform, managing clients on second and third platforms is very much “hand cranked”. This can severely erode the efficiencies which managed accounts can offer.
In-house vs Outsourced
Many of the managed account programs that have been established over the past few years were constructed for a licensee.
This offered the benefits of differentiation - “Our Portfolios” but has brought with it a number of disadvantages.
This is particularly true for larger groups with more advisers.
The disadvantages of an in-house investment committee, even supported by an asset consultant can include:
- The need to manage conflicts,
- The cost of maintaining the appropriate level of appropriately skilled resources,
- Diversion of management time and focus, plus
- Trying to cater to differing investment philosophies within the licensee
Investment Expertise and Access
One of the principal changes in investment markets over the past few years has been the rise in importance of private market investments.
Integrating this class of investments into managed account programs has proved to be tricky in terms of.
- Access to suitable, proven investments,
- Research capability across new asset classes,
- Understanding the impact on managed account portfolio construction,
- Differing client requirements and investment preferences, leading to “version proliferation”, and finding the managed account program can’t cope with this expansion.
Business acquisition and merger
Acquiring or merging practices, when one or both have a managed account program can create problems.
Whether to continue with both programs and both consultants, how compatible the goals of the programs are, which has the better track record, how to accommodate the fact they run on separate platforms.
The answers to these questions can depend on whether it was an acquisition or a merger of equals.
Undertaking a review
The overarching indicator of whether the managed account program is working effectively is the level of usage by advisers, and the proportion of client assets that are catered for within the managed account program.
Like every important element in an advice service offering, the managed account program itself warrants a periodic review.
Here are some of the criteria that advisers tell us they consider when undertaking that review:
|
Consideration |
Questions |
Potential measures |
|
Objectives |
What are we aiming to achieve? |
“Better” client outcomes Efficiency of delivery Differentiation of our service offer Financial impact |
|
Is the program delivering? |
Investment returns Perceived efficiency Client Net Promoter Score or similar Cost to deliver / revenue received |
|
|
Do we have the resourcing |
Internal resource commitment Consultant capability Skills required in-house or external |
|
|
Client base |
Do the portfolios meet our client needs? |
Uptake by advisers Non model investment assets Ability / need to recommend non model assets Ability to accommodate illiquid or alternative assets |
|
Does the current structure |
SMA or MDA Single or multi platform Ability to customise at a cohort or client level |
|
|
Do we have different cohorts |
Fit between standard models and client needs Ability to meet HNW needs |
|
|
Investment Outcomes |
Are the models performing |
Risk and return characteristics compared to benchmarks |
|
What is the relative performance compared to equivalent models? |
Peer group ranking Client defection |
|
|
Penetration / Uptake |
What support do we get |
Proportion of advisers who use the models Proportion of clients on platforms with access to models Proportion of practices which have their own models / use another portfolio manager? Adviser perception of conflicts |
|
Have we provided the |
Initial training and accreditation commitment Ongoing training and portfolio knowledge |
|
|
The future |
Will more advisers and |
Change over time in uptake Expressed attitudes of advisers Penetration of individual adviser’s client bases Continuing training commitment |
|
Will our client segments change? |
If we buy / merge will these models continue to be usable? Are we aiming to target a different client group or provide a different service? Can these models meet those needs? |
Actions Arising
Outcomes from completing a review can often include such actions as:
Investment
- Determining whether to continue to offer “in house” models or instead to partner with a preferred manager or asset consultant.
- ReviewING the asset consultant relationship, especially if portfolio performance has been below peers.
Structure
- DeterminING which structure – SMA or MDA – will meet the need for flexibility required to service your client type (if any).
Adviser Commitment
- More training and support to ensure that advisers understand the philosophy and characteristics of the range of portfolios offered.
- Information and training about how to better cater for client groups like retirees, blended families, wealthier investors with established portfolios, wholesale investors.