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Enhancing the benefits of managed accounts

Perpetual kicks goals with Mainstream SMA

As more advisers and clients recognise the benefits of managed accounts, Ilan Israelstam believes these benefits can be enhanced by the use of ETFs as a core component of a managed account.

The benefits of managed accounts are well-documented, and flow to both clients and their financial advisers. At their core, managed accounts allow advisers more time to spend engaging with existing clients, and prospecting for new ones, due to administrative efficiencies and a reduced compliance burden.

At BetaShares, we are seeing a growing appreciation of the role that exchange traded funds (ETFs) can play in further enhancing these benefits – in many ways, ETFs and managed accounts are a perfect match!

Asset allocation adjustment

Advisers are telling us that using ETFs in managed accounts makes the process of adjusting a client’s asset allocation much more efficient, with adjustments able to be made quickly, and with low costs.

One of the consequences of the rapidly increasing popularity of ETFs is that there is now a wide selection of funds available offering diversified exposure to a range of asset classes, including equities (both domestic and global), fixed income, hybrids, commodities and currencies.

In a single trade on the ASX, an adviser or managed account manager can increase, or reduce, a client’s allocation to any of these asset classes. Compare this to where the client’s exposure is achieved through individual stock holdings, requiring multiple transactions, with the associated costs and time involved. 

Using ETFs also removes the need for the adviser to select the individual securities to buy or sell, with the inherent risk that those selections may underperform the market.

Cost-effective

Investors are becoming increasingly aware that, after fees, the majority of actively managed funds have tended to underperform their stated benchmark. For example, up to 30 June 2019, more than 80 per cent of actively managed Australian Equity General funds underperformed the S&P/ASX 200 Index over one, three and five-year periods1.

The lower fees that ETFs charge compared to actively managed funds, and the absence of entry or exit fees, is one of the most compelling reasons to use ETFs in managed accounts – providing the ability to significantly lower the cost of implementing financial advice to clients.

Exposure to themes, regions or sectors

Another consequence of the growth in ETF offerings is that it’s become simpler to allocate client funds to a particular theme, geographic region, investment style or industry sector. 

Advisers are welcoming the ability to offer tailored exposure that meets clients’ preferences. It also gives advisers the opportunity to go to clients with investment ideas and a simple way to implement those ideas.

At BetaShares, we have been a leading innovator in the development of thematic ETFs, launching funds that offer diversified exposure to themes, such as robotics and artificial intelligence, and global cybersecurity.

For investors who favour an investment style or strategy, such as ethical investing or factor investing, there are many ETF options. Smart beta ETFs are benefiting from the increase in interest in factor investing. We think there’s likely to be strong growth in funds allocated to ETFs whose components are screened for factors, such as quality, yield or low volatility. Using smart beta ETFs in managed accounts also provides another ‘story’ for advisers to tell their clients, further demonstrating their value-add to investors.

Constructing such exposures via individual stocks is time-consuming and costly, while ETFs, by contrast, make the process fast and efficient.

Transparency

A recent survey undertaken by Praemium, in conjunction with consulting firm Business Health2, found that 40 per cent of clients today prefer self-service over human contact, and 50 per cent believe their adviser should offer a digital solution. ETFs are well-suited to be a part of an engaging interactive digital solution.

Feedback is that investors are very positive about the transparency of ETFs. The ability to – at any time – check an ETF issuer’s website to see the fund’s portfolio holdings and net asset value, updated daily, is a big plus. 

In addition, real-time visibility of an ETF’s market price during the trading day is an advantage over unlisted managed funds, whose prices may be updated daily at day-end or less frequently.

ETF model portfolios

ETF model portfolios take things a step further.

Our model portfolios were first developed in 2016, but it’s only this year that they have become available on major platforms, including BT Panorama, Netwealth, Macquarie Wrap, Hub24 and Praemium.

We are seeing a lot of interest in these portfolios from advisers, who are attracted by the idea of lower costs of servicing clients, reduced compliance hassles, and increased efficiency in managing client portfolios.

We offer five ETF model portfolios tailored to varying client risk profiles, and based on the APRA Standard Risk Measure, enabling advisers to easily match portfolios to clients’ financial objectives and risk profiles.

If an adviser invests in an ETF model portfolio in an implemented solution, such as a SMA via a platform, no trading or portfolio rebalancing is required, as it’s all done on their behalf. In addition, when using SMAs, there are no ROA requirements for these regular rebalances.

Summary

Current trends suggest that both clients and advisers are increasingly recognising the benefits of managed account solutions – benefits that we believe can be enhanced by the use of ETFs as a core component of a managed account.

Ilan Israelstam is Head of Strategy and Marketing at BetaShares.

Footnotes

1. Dow Jones Indices, SPIVA Scorecard, 2019.

2. Praemium, The future is bright when you’re prepared, 2019.

Next events

The IMAP Managed Awards 2023 in its 6th year
IMAP Managed Account Awards 2023

Entries to the IMAP Managed Accounts Awards 2023 Now Closed

IMAP thanks everyone who has submiited entries for the 2023 Awards.
Submissions have now closed and the judging process has commenced
 

Please contact Jenny Phimleut Program DIrector and the IMAP Awards team if you have any questions

E: awards@imap.asn.au  Phone: +61 2 8003 4147 


 

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