Peter Chun

General Manager Distribution,

Colonial First State

One of the questions I get asked frequently is why managed accounts have skyrocketed in popularity over the last few years. And while sometimes it can be difficult to pinpoint why certain investment solutions suddenly gain traction, in the case of managed accounts, I think it’s quite clear.

The investment benefits managed accounts offer clients have been key drivers behind the growing interest in them and are generally well understood. Depending on the structure of the managed account, these can include transparency of underlying assets within the portfolio, beneficial ownership for clients over the underlying assets and individual tax outcomes.

In addition to the client benefits, based on my conversations with advisers and licensees, I think there are three main reasons managed accounts are increasingly being adopted within advice businesses:

• greater administration efficiency and risk controls;
• better client engagement; and
• improved business performance.

1. Increased efficiency and better risk controls

Most advisers still spend much more time on administration than they spend face-to-face with their clients. The beauty of managed accounts is they can help switch this ratio around.

I’m seeing advice businesses enjoying great efficiency gains by using managed accounts to outsource portfolio management to a professional portfolio manager. They’re effectively handing over the responsibility for investment selection, rebalancing, corporate actions and trade execution – along with the countless administrative requirements related to these investment activities.

And the portfolio manager also manages the level of risk within the portfolio and makes adjustments in response to market conditions. This allows advisers to focus on providing strategic advice, knowing their clients’ portfolios are being managed by experts.     

To validate what we’ve been hearing from the market, Colonial First State (CFS) recently commissioned a survey by Business Health and IMAP on the benefits of managed accounts to advice practices, and the results are compelling.

According to key findings from the survey, 87 per cent of advisers reported that using managed accounts has reduced the time they spend on administration, and 70 per cent reported improved risk controls as a result of moving to managed accounts.

2. Better client engagement

The cumulative effect of greater efficiency and reduced risk is that the advice businesses in our research group have been able to spend more time developing strategic advice for their clients. Seventy-three per cent of practices using managed accounts identified improved client engagement as a benefit, which is important, as other Business Health surveys show improved client engagement leads to more satisfied clients and higher client retention.

Growing and maintaining a profitable and well-run business can be a full-time job in itself, but ultimately, it’s the clients who ensure a business’s success. By focusing on client needs and outcomes, rather than administration, everyone benefits.

3. Improved business performance

As well as the positive impact managed accounts can have on the efficiency, risk controls and client engagement within an advice business, they can also help drive profitability.

This was highlighted in our research, with practices using managed accounts reporting on average a 25 per cent higher profitability than those that weren’t using them.

And the news is even better for practices that embed managed accounts into their business model. Practices with over 50 per cent of their clients invested in managed accounts reported over double the profits of those that had less than 50 per cent invested.   

Managed account solutions

Providing advisers and licensees with efficient portfolio management solutions is at the heart of what we do at CFS. For us, managed accounts are simply the next step in this evolution.

It’s not well-known, but we have a strong history in managed accounts dating back to 2008. We started our journey 10 years ago by developing customised managed account solutions for a small number of our large institutional clients and we currently administer over $7 billion in FUA within these structures.

In developing our managed accounts product suite, we recognise that different licensees and advisers have individual business needs and requirements. That’s why, rather than developing a one-size-fits-all solution, our approach is to develop a range of managed account solutions.

We currently offer managed accounts solutions on both our FirstChoice and FirstWrap platforms. Work is also underway on our FirstWrap tailored managed account solution, which will complement the existing FirstChoice offering. These services are ideally suited to licensees with in-house investment capability that are looking to take on the role of portfolio manager for their managed accounts solution.

No matter what type of managed accounts solution you choose, it will likely take time to implement within your business and to educate both your clients and staff. That’s where the team at CFS can help.

To learn more about managed accounts or the managed account solutions at CFS, visit colonialfirststate.com.au/managedaccounts.

Peter Chun is General Manager Distribution at Colonial First State.