Chairman's report: Managed accounts approach $50b – What next?

IMAP has just released its third study into the size of the managed accounts market. We counted $48 billion in FUM from the survey responders, made up of:

• SMA’s – $14.3 billion;
• MDA services – $22.9 billion; and
• Other types – $10.7 billion.

This is an increase of $8.9 billion on the census we conducted in December 2016. Growth rates are currently 25-30 per cent, depending on the type of managed account.

So, managed accounts are a large market – and growing quickly. It seems they really are the next big thing.

What explains this relatively recent uptake in services that have been on offer for quite a long time?

Well, it’s because managed accounts offer real benefits to both licensees and advisers. It’s these benefits which are the underlying factors for creating this surge in demand. For advisers, this has been manifest in:

• Better client outcomes from portfolios that are subject to continuous monitoring and review, and which allow direct beneficial ownership;
• Practice efficiency that comes from not having to issue ROAs for every transaction; and
• Cost reductions for clients, partly from market pressures and partly from the increasing use of lower cost investment options, such as ETFs.

For licensees, in addition to better advice practices and the benefits that brings, there have been two other main drivers:

• Fewer problems with compliance and operational error; and
• Revenue opportunities arising from charging for the portfolio management function.

We are still in the early days of the development of managed accounts. After all, platform assets are around $750 billion and managed accounts are less than 10 per cent of that.  

Increasingly, it will be licensees and their business objectives that drive the development of managed accounts. Once adviser office efficiencies are achieved and advisers have confidence that recommending a managed account solution doesn’t disenfranchise them with clients, licensees’ objectives will shape the evolution of managed accounts in every way.

This will result in:

• Technology development that allows greater control to be in the hands of the licensee and makes them less dependent on one-size-fits-all solutions;

• More complete control of the investment process, in particular asset allocation and manager selection, through their ability to be certain that their decisions will be implemented; and
• Greater revenue certainty, accompanied by better resourcing of their businesses, which in turn will make more valuable businesses.

For licensees, managed accounts mean that taking control of the investment solution becomes a reality.

All the best.

Toby Potter

Chair