With modern technology, high quality governance and well-structured investment models, managed accounts could fast become the default option for high quality advice practices around Australia, says Thomas Bignill.

Thomas Bignill

Managing Director of Adviser Services

Mason Stevens

The adoption of managed accounts continues to grow, with take-up occurring more broadly than ever before. While some thought pressure on the sector would come post the Hayne Royal Commission report, in reality, the opposite may be playing out.

As advisers increasingly appreciate the benefits of managed accounts for clients, as well as generating practice efficiency and scale, it is arguably fast becoming the default option in managing clients’ money.

As the Royal Commission tornado swept through 2018, we were all shocked with the headlines of examples of poor advice and best interest conflicts; the upshot being more regulation, tighter controls and greater scrutiny. These lessons simply reaffirm how a well-constructed managed account service could assist in strengthening your business and value proposition.

From my perspective, the key takeaway on managed accounts that came out of the Royal Commission was around the regulatory environment in which they operate and who is enforcing the various facets of a service.

There is no doubt about the fact that advisers can create their own managed account service for the benefit of the client and the benefit of their business, but how they charge and the governance of how they manage the investments is the critical question.

The governance parameters are clearly aligning between an MDA provider and an RE (responsible entity for managed funds), and most leading managed account services have already had comparable governance structures in place for some time.

What was possibly lost on many people was the global equity market rout in the last quarter of 2018, where global markets crumbled, led by growth concerns, combined with over-valued technology stocks.

This is a clear example of how advisers using managed accounts can take advantage of such weaknesses, with real time changes to portfolios across an entire client base. This may be to either reduce risk in a portfolio or seize investment opportunities as markets rebound. Either from a defensive standpoint or an offensive position within a traditional advice practice, this type of flexibility and nimbleness is hard to replicate.

Tailored

At its core, a well-structured managed account service offers investment choice and diversification for clients, and practice efficiency and scale for advice practices of all sizes.

Driving this change has been a combination of improving technology that allows highly efficient managed account services to be created, and the demands of clients looking for better investment outcomes and more engagement with their advisers.

With financial advice certainly not being a one-size fits all service, and the increasing focus on best interest, a managed account service has the ability to improve advice practices into the future.

This revolution is in its early days and will be a key feature of successful advice practices as the pace of change accelerates.

Transparent

An increasing focus for investors and regulators is on the level of information that can be easily accessed by investors on their investment portfolios and the degree to which these investments are being managed. Gone are the days of ‘set and forget’ investment strategies with annual reviews.

A managed account service gives clients beneficial ownership of their investments, with complete visibility of all underlying constituents. A well-structured mandate, with well-articulated governance and decision-making (including all relevant fees and costs disclosure), allows clients to not only view each of their investments, but ultimately helps them appreciate each of the investment opportunities within the overarching mandate objectives.

This can then be linked to the strategic planning objectives of the client, creating the opportunity for a higher quality dialogue between adviser and client, where the conversation moves from a ‘backward looking’ review of investments, to a forward looking, strategic conversation.

Compliance

A well-structured and rigorous compliance regime is one of the most important considerations for any advice practice. A managed account service underpinned by great technology, can be a way in which high compliance standards are achieved and maintained.

Whether a practice is a small business, or a large multi-office enterprise, a well-thought-out managed account service can be of great benefit.

Having a consistent investment methodology, a robust investment governance framework for decision-making, and a variety of investment solutions for clients, is a compelling risk management tool for compliance functions.

Add to this, the ability to have investment decisions implemented in real time, plus full underlying visibility of all client investments, means compliance functions have the opportunity to ensure high practice compliance standards.

For the practitioner, this framework is scalable, efficient and effective.

Scalable

A modern managed accounts service offers significant scalability benefits for practices of all sizes, without compromising the ability to offer bespoke solutions and tailored outcomes for a range of clients.

The efficient and streamlined process that underpins a modern managed accounts strategy means the adviser spends less time on day-to-day administration, and more time creating value for existing clients, and developing relationships with prospective clients and referral partners.

Expertise

An effective managed accounts service built on leading technology, allows advice practices, and therefore clients, to access the benefits of experts within asset allocation and underlying investment markets. With investment decisions able to be implemented in real time for all clients, the ability to leverage this expertise is unparalleled.

Accessing this expertise is best done through a formal investment committee structure that articulates the framework through which this expertise is delivered. Asset allocation specialists, investment models and underlying investment managers, should all form part of the regular investment committee decision-making process, which can be documented and recorded for later reference.

By accessing experts in this way, advice practices can focus on what they do best, which is the provision of high quality financial planning advice.

Conclusion

There are many benefits for both clients and advice professionals in implementing a managed accounts service. With modern technology, high quality governance and well-structured investment models, managed accounts could fast become the default option for high quality advice practices around Australia.

Thomas Bignill is Managing Director of Adviser Services at Mason Stevens.