Perspectives asks four industry professionals the following question:

Q: Knowing what you know now, what would you do differently if you were rolling out a managed account service again?

 

Julia Schortinghuis CFP®

Director, Lighthouse Capital

For anyone who is looking to gain practice efficiencies by implementing an MDA service, I would emphasise the need for robust back-office processes and systems.

Operating an MDA service enables you to reduce the production of ROAs and other advice documents, whilst simultaneously opening a window for more tailored and relevant client communications.

It is essential to have a clear understanding of what you are wanting to achieve and how you will deliver it. Enhancing the client service experience has underpinned our decision to operate under an MDA model.

Take the time to understand pending changes under ASIC’s Regulatory Guide RG179 reissued in September 2016, which sets out an overview of the MDA policy, how it defines MDA services and the main policy in regulating MDA services.

I have noticed there is generally a tendency to promote the positive aspects of operational solutions and undersell the negatives. One way to get a clearer picture is to have a team member spend a day in the office of another practice that is successfully operating an MDA service.

Reaching out to peers can help to build an ‘objective, realistic and practical’ viewpoint. This will enable you to gain an understanding of the day-to-day realities, take a deeper dive into the back-office systems and see examples of how others reinvest the time savings.

I have found this approach to be really helpful and for the most part, have found that other businesses are open to sharing.

 

Peter McVeigh

Executive Chairman, Elston

We have always offered managed account services, so for us, it’s been a process of continual improvement.  

Offering a managed account solution is not only about gaining practice efficiencies but about providing an exceptional experience and superior investment outcomes for your client.

Another driver for Elston has been our clients desire to have greater transparency and control over their direct investments, which also enables after-tax investment management.

The transparency is a huge plus, but from a practice management perspective, it can create issues if it’s not addressed correctly. This is particularly the case if you are investing in direct assets and not ETFs, or wholesale managed funds. 

For example, with a service focused on direct assets, I’d recommend practices consider how they are going to communicate changes within portfolios. Communication needs to be proactive rather than reactive. Efficiency gains can soon be lost if advisers start fielding calls from clients asking why ‘investment A’ was sold and ‘investment B’ was bought. 

To assist with this, it is vital to have a defined investment philosophy and process that can be easily articulated to clients. Without this, investment decisions will appear to be made in a vacuum. If an investment philosophy has been communicated, and agreed to, it can be referenced when having client conversations about portfolio movements, which in turn will re-enforce the investment philosophy. 

Don’t underestimate the time and effort it takes to manage the investments. If you don’t have a dedicated asset management team, outsource to an external. Ideally, advisers are 100 per cent dedicated to managing client relationships or gathering new clients – not managing investments part-time.

 

Patricia Chan CFP® CA

Managing Principal, DFS Advisory Services

With the benefit of hindsight and experience, improvements can always be made. For DFS, it was the realisation that our clients were more ready to embrace technology than what we gave them credit for. Knowing that, our transition plan could have been ‘bolder’.

To put this into perspective, our clients were already in our model portfolios, albeit on wrap platforms. The move to a managed account structure delivered greater efficiencies and improved portfolio management timeliness; however, this only becomes optimal under a fully implemented portfolio service.  

But in 2008, managed accounts were not widely used and we weren’t entirely sure whether our clients would be open to having their portfolios managed under a full discretionary service.

We erred on the side of caution and took great care and time to ensure that clients were comprehensively engaged along the entire way. We staggered the transfer process into phases and invested in internal resources to manage the project. We successfully completed the managed account platform changeover for all our clients over four months. We subsequently transitioned a large proportion of this client-base to our flagship Risk Profile Models (our fully implemented portfolio service) a few years later.

In hindsight, our roll-out plan was largely unnecessary for every client; we could have ‘cut to the chase’ and still achieved the same outcome for many. Some common feedback from clients was:

1. there is trust in what we do, given we already manage their investments; and

Ii. moving to a technologically advanced platform is viewed as being very positive.

So, our concern around client reservation was ultimately not there.

Regardless, significant goodwill was generated from the exercise. Clients saw that the transition effort was genuinely about alleviating each potential concern. Goodwill, how ever gained, is always a good thing.

 

John McIlroy

Director, Crystal Wealth Partners

Our MDA services provide two main options for clients. The first option is for clients to have their portfolios managed under a custodial structure using model portfolios. Portfolios are managed strictly in line with the models. The second option is for client portfolios to be managed with MDA assets registered in the client’s name.

There are four things I would do differently if I was rolling out our service again. I would:

1. Have developed software internally to manage the portfolio rebalancing of client portfolios, which were not under custody. There wasn’t software available at the time we started the service that would do this well and there is still very limited functionality available in the market. This would have made portfolio rebalancing for these clients more efficient.
2. Promoted the use of the model portfolio/custodially held assets approach more, rather than being more neutral with clients. It is a more efficient structure and generally leads to better investment performance outcomes for clients.
3. Have had better processes for managing individual client preferences, mainly in regard to ethical overlays. Clients with ethical and other specific overlay requirements do not use our model portfolio/custody option. However, managing these requirements can be problematic without the right software.
4. Have promoted our direct global equity model portfolio more. It has performed very well and apart from providing clients with direct exposure to some of the world’s best companies, it is highly transparent and cost comparative with an Australian equities model portfolio.

We believe that our MDA service has provided a high degree of flexibility for different client scenarios and is a very efficient way of running a modern practice. Most of the above items would have extended that efficiency to a higher level.