Marketing a new program

When implementing a new managed account program, there are a number of steps required to effectively communicate and market this program to planners and clients, writes Toby Potter.

So, you’ve weighed up the advantages and disadvantages of managed accounts, done your homework and research, and have finally decided that this type of investment structure is right for your clients and your business. Congratulations. That’s the first step but there are still challenges ahead.

When licensees consider developing a managed accounts program as a replacement for the conventional advice/recommendation-based process, they are often concerned by the challenges they expect to have in ensuring their planners are as committed to the project as they are.

Overcoming these issues requires licensees to address the issue in two ways:

• Overcoming planners’ fears and objections; and
• Equipping planners to effectively communicate the benefits of the service to clients, particularly to existing clients who have previously been receiving a different form of service.

Dealing with planner concerns

Let’s first consider the typical concerns that arise among planners when a new managed accounts program is discussed. These can be grouped into four areas:

1. Role perception

• ‘Will this service undermine the way in which my clients regard me?’, or

• ‘What type of relationship will I have with my clients if they don’t see me as the person who selects their investments?’

2. Customisation of the service by client

• ‘My clients have unique circumstances and lots of them have other investments or specific preferences, which need to be taken into account when their portfolio is being constructed.’

3. Fee concerns

• ‘The proposed fee structure will be hard to explain to my clients. They are used to seeing only my advice fees and the platform fees, and they understand that there are costs in the funds they hold.’

4. Best interest issues

• ‘How can I recommend an in-house service? Will this truly be in my clients’ best interests?’

It’s clear that the answers to these legitimate questions will vary depending on the service structure that the licensee adopts.

For example, if the managed account service adopted is simply a decision to include a number of third party managers’ SMAs from the licensee’s preferred platform onto the APL, then issues of the planner’s role, customisation and best interest are unlikely to be significant.

The planner will be recommending an SMA in the same way as they might have recommended a managed fund. Their role in portfolio construction is supported and the planner is able to explain the benefits of this structure, compared to pooled unit trusts.

The explicit cost may be an issue but again, pooled unit trusts and their indirect cost ratio (ICR) provide an appropriate reference point. Since the licensee is not earning a margin or other benefit from the SMA provider, questions of conflict are very unlikely to arise.

However, the ‘role perception’ question can arise when the SMA is directly equivalent to the type of portfolio that the planner typically includes in their advice.

For example, a direct equities SMA managed by an external manager. In this case, if directly held equities are common in a client’s portfolio or a balanced multi-asset class SMA (often constructed by research houses using ETFs), there could be the perception by clients that this type of manage account is equivalent to the planner’s investment approach.

The questions highlighted above can arise most acutely when the licensee is directly involved in the portfolio management and construction process of the managed account. This might be a set of SMAs that are specific to and branded for the licensee or it may be an MDA service where the licensee is either the MDA provider directly or has an arrangement to provide advice on a set of portfolios that the licensee manages through a third party MDA provider.

In this case, the roles of asset allocation and manager selection are taken on by the licensee and its investment committee, or by a research house or portfolio manager that it selects.

Client questions

This section on ‘client questions’ should really be called, ‘Planner concerns about client concerns’. They are the concerns that a planner might think a client, particularly an existing client, might have when the planner recommends the use of managed accounts – SMAs or MDAs – instead of a purely advised portfolio. These might include:

Perceptions of the actual service offered

• ‘I thought you were doing that already.’

Cost concerns

• ‘How will the cost compare to my current costs?’

Investment concerns

• ‘Will this still support my preference for [sustainability/not selling this existing holding/ethical investing]?’ – Obviously, the actual issue the client raises will be particular to their circumstances.

Dealing with objections

In a service proposition, such as advice generally and managed accounts in particular, there are three key ways of responding to and dealing with objections. These are:

• Rational responses – Having an answer to the specific issue raised;
• Emotional responses – Coaching on behaviour change; and
• Experiential responses – Conduct over time that demonstrates that the issues raised are less significant than imagined and the benefits achieved are real.

So, in addressing the issues raised above in dealing with planner concerns:

1. Role perception: The licensee wanting to address this can concentrate on responding with answers such as:

• ‘This will free you up to focus on those issues that really can make a difference to the client, such as strategic advice and good structures,’ or

• ‘This moves your conversations with clients away from a focus on either a specific investment recommendation or the performance of your portfolio selections.’

2. Customisation: Most managed account programs now support a greater or lesser degree of customisation, such as exclusions and substitutions or running advised assets and managed account assets in the same or linked accounts. The answer here will depend largely on the technology used for the managed account. However, a connected issue here is the desire of planners to reflect their own views in their clients’ portfolios.

For example, a stock which has a good dividend yield may be avoided by portfolio managers because they believe it to be at risk of capital loss. There are a number of examples of this in the Australian market. Licensees will need to develop their policy on the extent to which they will be prepared to allow planners to depart from portfolio positions.

3. Fee concerns: As an issue that has a demonstrable answer, the question of client cost will need to be addressed explicitly. Frequently, the introduction of managed accounts will be accompanied by a realignment of costs, which generally means clients are now paying more but are receiving a better service.
4. Best interest issues: Best interest issues can express themselves in a reluctance to recommend an ‘in-house’ service.

Appropriate responses will stress that the resources the licensee has implemented are to ensure the portfolios are as good as they are able to provide.

• ‘The portfolios are our best views on the portfolios, which a client should hold.’

• ‘In this way, we can ensure that as our views change, we can implement those changes immediately and at least cost.’

• ‘We have outsourced those parts of the portfolio management process, such as security selection, to those managers we think are most likely to meet the portfolio objectives.’

Behaviour change

The best way to achieve behaviour change in your practice is by repeated demonstrations and making the experience of other planners available to those team members who remain to be convinced.

The experience of client outcomes achieved through portfolio management and practice efficiencies, which other planners experience, needs to be captured and related at professional development days and in other regular updates on the managed account service.

Of course, the most powerful advocates for the managed accounts service will be the support of other planners.

Firsthand experience from other planners who have implemented managed accounts for new clients and then experienced the benefits that they (and their clients) achieve from not having to manage their client accounts on a one-by-one basis, is powerful.

Experiential responses

There’s no doubt that the best support for the introduction of a managed accounts program can be achieved through:

• continuing to advocate for the service;
• providing good communication support on the performance of the portfolios and about portfolio changes; and
• ensuring that the experiences of early adopting planners are shared.

Summary

Making a success of marketing a managed accounts program to planners and clients is a result of understanding the issues that might be raised about the changes that it entails. Addressing these in a multi-layered way – with rational, behavioural and experiential elements – is key to gaining commitment from the key audience, the planners.

Toby Potter is Chair of the Institute of Managed Account Professionals (IMAP).