At Shartru Wealth, our advisers have a wide and varied skill set. So, our challenge was to come up with a solution that would enable all our advisers to deliver advice to their clients that would provide them with the best possible investment solution.

When we started looking at the MDA structure, we were uncertain whether the benefits of an MDA would be as good as they actually were. However, when we started delving into the process of setting up our MDA, it became quickly apparent that this solution was going to greatly transform our business. In fact, it quickly exceeded all our expectations.

I believe a negative to services like platforms are the managers that limit your ability to invest in the sorts of assets that sit outside T+2 (trade date plus 2 business days) type arrangements. This means when we have GFC-type events, we end up with a correlation of assets of about one.

But at the end of the day, the only thing clients care about are the delivery of their objectives, which includes a sustainable income and the preservation of their capital.

In the process of setting up our MDA, it took us a long time to find a partner who shared our philosophy and was going to enable us to do what we wanted to do.

It took us about one year to go through the various players, before deciding on the final selection of  organisations we were going to partner with.

Today, the MDA provides us with a mechanism to be able to provide consistency and a timely solution for our advisers and their clients.

We have a core satellite approach, with a passive and active component to that. We also have a very strong belief in the correlation of assets.

Why ETFs?

At Shartru Wealth, we use Exchange Traded Funds (ETFs) inside our MDA. So, why use ETFs?

Well, for one thing, ETFs have changed the way we go about doing things quite dramatically. There are active ETFs, passive ETFs, broad ETFs and specific ETFs. In fact, the only thing that can limit what can be put in an ETF is the product provider’s imagination, which is generally prompted by advisers asking them for certain solutions.

ETFs tick all the boxes: they are easy to use, they are cost-effective, they are easy to execute, they are transparent and they are regulated.   

ETFs in the core

At Shartru Wealth, ETFs have provided us with a lot more variety in terms of how we go about building portfolios, as well as our core approach to managing money.

For example, we have a certain view on Australian banks and where they’re sitting at the moment. So, does it make sense for us to have a position of about 40 per cent of our core in those banks? Definitely no.

Instead, we simply have an equal weight ETF and by doing so, that dramatically reduces our exposure to banks in our core, without changing the underlying premise of what the core is. There’s no buying and selling.

So, this enables our advisers to explain to their clients about why we have reduced our exposure to the banks, and clients are happy that their adviser is engaging with them in respect to what is happening in the markets.

ETFs are that easy and quick to use. So, if you don’t like Wesfarmers, Telstra or the banks, and you want to get exposure to companies outside the Top 20, then ETFs are the solution. ETFs enable you to skew your portfolio very simply.

We’ve got a whole range of filters that can be applied to investments, such as the core. So, instead of having market capitalised indexes, we can have particular filters. For example, our view of the world is there’s probably a little bit too much debt out there at the moment. So, there are filters in ETFs you can utilise to reduce your exposure to such companies. For us, that makes sense.

Also, if we want to increase our leverage, we could get a geared exposure to the market by using a geared ETF. Naturally, you’d be unwise to do that at this point in time but nonetheless, it’s an option.

ETFs for satellites

Once we settled on our core position, we then looked at what we’re doing in regards to our satellites. We had positions in Japan and Europe. So, in terms of our international exposure, by buying an appropriate ETF, you’re effectively skewing your portfolio, taking a satellite position to reflect that view. It’s done with one trade, it’s done very easily, it’s done very cheaply and it’s done efficiently.

For example, as soon as the Japanese Government announced it anticipated the popularity of bitcoin would mean the Japanese economy was expected to grow by 0.3 per cent, you can then get in and sell the Japanese exposure very quickly, which benefits your clients.

In regards to hedging, you can actually take short positions in your portfolio to manage risk, which I think is a tool that a lot of financial advisers are using at the moment. You can also use it to take a speculative view. At Shartru Wealth, we use hedging in terms of managing risk.

Also, there’s a whole range of ETFs that effectively enable you to get one-for-one or one-for-three exposure. So, by owning a 10 per cent exposure to a short, you can actually protect one-third of your portfolio.

These are the types of tools you can easily utilise in line with your investment philosophy. It enables you to actually deliver what you are saying to clients.

There’s also the opportunity to take positions in sectors like gold. Once again, it’s only the imagination of product providers that will limit what you want to do with ETFs.

Technology play

Another significant issue coming into play is technology innovation and being able to access different forms of assets that we traditionally haven’t been able to do.

For example, we use the DomaCom platform in our MDA. We’re looking to do some direct property transactions in that – both debt and equity. By doing so, that will give our investors the ability to participate in assets that are going to give them an entirely different risk/return profile to what they can get elsewhere.

So, as a structure, MDAs are excellent. In fact, I predict that within five years, everybody in the industry will be using them. My advice is, if you’re not offering MDAs, then get onto them!   

Rob Coyte CFP® is Chief Executive Officer at Shartru Wealth.