By Jayson Forrest - Managing Editor - IMAP Perspectives
Nigel Crampton Head of Managed Accounts - Milliman
Building smart client solutions - Milliman’s SmartShield Series wins the Innovation category at the 2020 IMAP Managed Account Awards.
Milliman’s SmartShield Series - a set of managed account portfolios with built-in risk management protection - has taken out the Innovation category at the 2020 IMAP Managed Account Awards.
As a business, Milliman is best known for its actuarial and management consulting expertise, specialising in wealth management and retirement here in Australia. It’s not the type of business you would therefore immediately associate with being a provider of traditional financial services products. But that’s changing, as Milliman flexes its considerable capability to provide licensees and financial advisers with a range of investment solutions, including managed accounts.
This capability has been acknowledged by this year’s judges of the IMAP Managed Account Awards, with Milliman taking out the coveted Innovation category for its SmartShield Series - a set of low-cost managed account portfolios with built-in risk management protection that can be switched on or off.
According to its Head of Managed Accounts, Nigel Crampton, Milliman has been running robust risk management processes for institutional clients for over 20 years. However, it saw an opportunity to bring that expertise to a retail audience, and also offer that same risk management capability for advisers to access for their clients.
“As a business with a strong pedigree in consulting, it was in our DNA to work with clients and listen to their needs, so we spent much of last year building this risk management solution in consultation with advisers,” says Nigel.
Launched in March 2020, the SmartShield Series is a set of four managed account portfolios - moderate, balanced, growth and high growth.
“This is not a capital guarantee product. Instead, it is a product that shields investors from severe market downturns,” Nigel says. “No client likes losing money, but they are prepared to take some risk. However, clients start to panic and make irrational decisions when portfolios are falling, so this product puts the brakes on to shield clients from that severe market downturn.”
As part of Milliman’s upfront consultation process with advisers about risk management, Nigel reveals the feedback centred on advisers wanting a solution that was simple, affordable and accessible, while protecting client portfolios during considerable market downturns.
“So, we stripped away the complexity, we ensured the portfolios were daily priced and liquid, we made them affordable at less than 50bps in total cost, and we made these managed accounts available on platform.”
This is not a capital guarantee product. Instead, it is a product that shields investors from severe market downturns. No client likes losing money, but they are prepared to take some risk. However, clients start to panic and make irrational decisions when portfolios are falling, so this product puts the brakes on to shield clients from that severe market downturn.
An innovative solution
In awarding Milliman the IMAP Award for Innovation, IMAP Chair and awards judge, Toby Potter said Milliman won this category because the SmartShield facility was purpose-built to work with managed accounts.
“It’s designed to provide protection at reasonable cost and be able to be applied or removed at the adviser’s or client’s discretion,” said Potter.
The judges picked up on three key aspects of the SmartShield Series that they considered made this solution truly innovative.
Firstly, enabling advisers to incorporate risk management within their managed account with the ability to turn the protection on or off without disturbing the underlying holdings within the portfolio, which would otherwise create capital gains.
“This broadens the use of risk management from not just those clients in retirement, but now also accumulator clients, as advisers don’t have to worry about incurring unnecessary capital gains if a client feels they no longer require the protection,” Nigel says. “You can’t get that in a unit trust.”
Secondly, to complement the SmartShield Series, Milliman has built a free tool to assist advisers when explaining the benefit of incorporating risk management into a portfolio, to their clients. The Milliman Simulator is a stochastic modelling engine that enables advisers to engage with their clients, compare portfolios and assist them in demonstrating their Best Interest Duty.
“Advisers are seeking quality client engagement tools that help tell the story. Tools, like the new Milliman Simulator, allow advisers to personalise their client conversations.”
And the third aspect the judges liked was that SmartShield was not a solution that compromises an advisers existing investment philosophy. As Nigel says: “It’s not an ‘all or nothing’ approach.”
“For some clients, they may only require risk management for a small portion of their portfolio, while for other clients, they may seek a higher degree of certainty and choose to invest a larger portion of their monies in the risk management provided by SmartShield,” Nigel says.
“So, we wanted to ensure that advisers had this flexibility, at an individual client level, to exercise how much of a client’s portfolio they wanted to apply risk management.”
By incorporating the Milliman risk management solution to their portfolios, licensees can maintain full control and flexibility over their portfolio construction design, which is an added benefit for licensees choosing to go down the managed accounts path
Advancement of managed accounts
Nigel believes the work Milliman has done with the SmartShield Series will aid in the advancement of managed accounts, enabling licensees to construct portfolios that incorporate risk management at a low-cost, as part of their overall managed account offering.
“By incorporating the Milliman risk management solution to their portfolios, licensees can maintain full control and flexibility over their portfolio construction design, which is an added benefit for licensees choosing to go down the managed accounts path,” says Nigel.
In fact, he believes one of the key reasons Milliman won the IMAP Award for Innovation, in addition to the product features, was the overwhelmingly positive reaction from advisers to the SmartShield Series.
“The very first advisers to invest into SmartShield had never previously used managed accounts, but they could easily see the tangible benefits of the managed account structure in the SmartShield portfolios,” says Nigel.
“These benefits included the ownership structure and design of a managed account, which is highlighted within these portfolios through the ability to add or remove the risk overlay without having to sell down the entire asset, which would be the case in a unit trust. So, these benefits were the catalyst for these advisers to use managed accounts for the first time.”
For too long, we have seen industry solutions with strong merit on paper and brought to market, but are simply not widely used because they don’t fit within an adviser’s process or are too complicated to explain to a client.”
Building solutions
Nigel adds that winning the IMAP Award for Innovation is particularly encouraging for businesses, like Milliman, that are focused on consulting with their clients to build a solution that meet their needs.
“For too long, we have seen industry solutions with strong merit on paper and brought to market, but are simply not widely used because they don’t fit within an adviser’s process or are too complicated to explain to a client.”
Nigel also pays credit to the founder of Milliman’s Australian business, Wade Matterson, who has
created and maintained a strong culture across the entire organisation, where the business is focused on delivering to its clients exactly what it says it will do.
“It’s really pleasing and incredibly satisfying for the team at Milliman, who are managing the risk of these portfolios 24 hours a day, to be recognised for their efforts.”
IMAP congratulates all the finalists in the Innovation category.
- Colonial First State
- FinClear
- Milliman
- Morgan Stanley Wealth Management
- Nucleus Wealth
- Praemium