A New Rebalance InvestTech 2020

By Jayson Forrest - Managing Editor  - IMAP Perspectives

WealthO2’s Managing Director and Co-founder, Shannon Bernasconi
WealthO2’s Managing Director and Co-founder, Shannon Bernasconi

With over 20 years’ experience in financial services, Shannon Bernasconi is excited by how technology innovation is shaping the future of advice and the development of managed accounts in Australia.

It was only in 2016 that WealthO2 first launched its discretionary and non-discretionary managed accounts offering. It was a decision, says the company’s Managing Director and Co-founder, Shannon Bernasconi, that was based on addressing a need in the market where technology could be used to simplify the financial planning process for advisers and advice practices.

“In bringing automation to compliance, execution processing, broker data connectivity, portfolio rebalancing, investment performance and analytics, we think we’ve successfully tackled this problem with our managed accounts solution that brings efficiency and scalability to financial advice firms,” says Shannon.

Established in 2015, WealthO2 is a privately-owned software and service company for financial advisers, which provides technologically efficient solutions that reduces administrative costs, while improving client outcomes.

It provides a platform solution for advisers, with its services including both discretionary and non-discretionary managed accounts - WealthO2 MDA and WealthO2 Managed Accounts - which includes bulk automation of electronically signed ROAs, as well as the MDA service.

“Both managed account paths are efficient, so it comes down to what’s really the best path of implementation for the client,” says Shannon.

“WealthO2 is a service, which means our MDA services are just that - a service, not a product. We don’t charge model manager ‘SMA’ fees, because we don’t believe the costs associated with putting a PDS around those models - the productisation of a model - is adding any value to the client.

“We provide a technology solution to advisers, with our focus on helping advisers become more efficient and profitable, as well as lowering the cost of the advice to the end-client,” says Shannon.

To make use of the MDA structure easier for advisers, the WealthO2 system delivers ease of portfolio construction, investment program generation, seamless flow through of model changes, proprietary bulk rebalancing and execution services, and ease of customisable electronic reporting for advisers and their clients.

“We have built in RG179 controls, like the 13-month renewal requirement, and open architecture that includes electronic signing for any regulatory requirements,” Shannon says.

WealthO2 is a service, which means our MDA services are just that - a service, not a product. We don’t charge model manager ‘SMA’ fees, because we don’t believe the costs associated with putting a PDS around those models - the productisation of a model - is adding any value to the client.”

Shannon Bernasconi

The changing landscape of fintech

With over 20 years’ experience in the financial services industry, Shannon is buoyed by how fintech is shaping the future of advice in this country. She points to three key areas where technology is changing the advice landscape.

  1. Technology innovation: This is helping to drive greater business efficiencies, while creating leaner and more cost-effective operating models.

  2. Data sharing and integrated adviser experiences: Fintechs are getting better at sharing data, which is improving the integration of technologies for the adviser. “This is streamlining the advice workflow, allowing advisers to utilise and incorporate ‘best of breed’ providers in the value chain, rather than being locked into one incumbent.”
  1. Enhanced user experiences, not just product features: Fintechs are delivering technology solutions that drive genuine business efficiencies, with improved client outcomes and user experiences.

“I believe these are the three key areas where fintechs are helping to reshape the future of advice in Australia,” says Shannon. “Technology is driving down the cost of advice, while providing the types of solutions that deliver improved outcomes for advisers and their clients.”

When pressed about what the future of advice will look like over the next 10 years, Shannon expects to see more advice practices incorporating technology into their businesses, with the path to professionalism for advisers finally bringing with it the respect of consumers and Government for the value advisers deliver to their clients.

However, she adds that you don’t need to look ahead 10 years in order to see the next generation of advice firms, with a number of these technologically savvy businesses already operating in the advice sector.

“There are many advice firms that are value-driven and fee-for-service, which have successfully integrated technology into their businesses. These firms already exist and they are making healthy profits decently. That’s what the next iteration of advice firms will look like,” Shannon says.

But do the majority of advice firms really adopt new technology?

“The good ones do,” says Shannon. “At WealthO2, we have over 60 practices that use our services. Those advisers and advice firms that are genuinely looking to serve the best interests of their clients, while improving the overall client experience and achieving the best outcome for their business, adopt new technology far more easily, as they have intrinsic motivation to do so.

“It’s these advice businesses that will be successful over the next decade - both in profits and growth - as they understand that technology is key to building a successful, sustainable and profitable business.” 

Those advisers and advice firms that are genuinely looking to serve the best interests of their clients, while improving the overall client experience and achieving the best outcome for their business, adopt new technology far more easily, as they have intrinsic motivation to do so

Shannon Bernasconi

WealthO2 New Rebalance

Prior to establishing WealthO2 in 2015, Shannon held the position of Managing Director Australia at Calastone - a global top 50 fintech innovator company. In her role, Shannon led the strategy, sales and growth initiatives for Calastone in Australia, working closely with the asset management, banking and adviser community. So, when it comes to technology, Shannon knows a thing or two!

She ardently believes technology innovation is improving and shaping the development of managed accounts in this country.

“One of the positive aspects of managed accounts, when delivered appropriately, is that there is a segregation of the investment skillset and the personal advice given to a client. The segregation can be an internal investment committee, with specialised research or asset consultants, or it can be outsourced investment management.”

However, she adds that managed accounts can sometimes be criticised for being too ‘cookie cutter’ and not tailored enough to meet the investment needs of clients or market conditions.

WealthO2 has responded to the critics by using technology innovation to develop and deliver a managed accounts solution that provides advisers with the ability to customise their clients’ portfolios to accomodate their personal requirements - whenever they change.

According to Shannon, WealthO2’s new innovation - WealthO2 New Rebalance - provides advisers with full control at the time of investing their client portfolios, providing them with the additional flexibility to adjust to market conditions or meet the investment needs of their clients, as required under the Best Interests Duty.

“WealthO2’s New Rebalance takes managed account functionality to a new level,” says Shannon. “New Rebalance allows advisers to edit proposed rebalance trades (at dollar amounts, units or percentage of portfolio), remove or trade only specific asset classes, or trade only specific models. This results in dynamic portfolio asset allocation calculations, that is, of the resultant portfolio for the adviser to view prior to committing the trades to the market.”

According to Shannon, this level of customisation of the initial portfolio can range from specific ethical overrides, right through to a blend of different models. “And when it comes to the actual implementation and execution of the rebalance, advisers now also have that ability, which is an important part when tailoring client portfolios.

“So, this is a great example of how technology innovation is helping to improve and shape the development of managed accounts,” says Shannon.

WealthO2’s New Rebalance allows advisers to edit proposed rebalance trades (at dollar amounts, units or percentage of portfolio), remove or trade only specific asset classes, or trade only specific models. This results in dynamic portfolio asset allocation calculations, that is, of the resultant portfolio for the adviser to view prior to committing the trades to the market

Shannon Bernasconi

Challenges ahead

Ask Shannon about some of the key challenges currently facing the managed accounts sector, and top of her list is ASIC’s focus on ensuring that there is enough personalisation and tailoring in managed accounts for clients.

“In that regard, WealthO2 has addressed this issue by providing portfolio construction tools for advisers that allow for the efficient use of models, whilst allowing for the tailoring of client specific needs and ethical considerations, as well as our new rebalancing tool for tailored implementation,” Shannon says.

Other challenges she sees for the industry revolves around the costs of some managed accounts.

“As technology solutions and the range of managed accounts have evolved, the costs of accessing product-based managed accounts, like SMAs, have mostly remained the same or in some cases, increased,” says Shannon.

“Whilst many platforms have dropped their headline platform administration fees, they have increased the per account and cash account fees. Some platforms have increased the managed account fee payable by the investment managers. This means, the direct costs the client pays for the SMA are increased by these fees.”

WealthO2 is actively working to counter this trend by not charging clients these cash or investment manager fees.

“This means clients do not get charged these additional fees, but they still have access to professional investment managers and managed accounts for up to 12bps cheaper,” says Shannon. “We believe it’s important for the client to pay the fee for the actual service, not all the additional fees surrounding that service.”

And when it comes to portfolio construction and tailoring, it’s exciting to see the role technology innovation is playing in providing improved outcomes for both advisers and their clients

Shannon Bernasconi

Building investment portfolios

So, how do advisers and portfolio managers build investment portfolios as part of a managed accounts solution that ultimately meet the goals and needs of clients?

It’s a good question, says Shannon, who says it all hinges on ‘tailoring’, specifically: the upfront tailoring of portfolio construction, tailoring within the rebalancing process, and in the execution of the tailored portfolio changes.

“When it comes to tailoring portfolio construction, there are multiple things that can be done,” she says. “These include blending the models/securities to suit the client’s overall portfolio construction requirements; setting overrides to ‘not buy’ or ‘sell’ certain securities or holdings for ethical, directorships or tax reasons; and the ability to hold assets outside the models and not sell them, due to tax reasons or a bias towards holding that particular asset.”

Other steps that should be considered for tailoring portfolio construction include:

  • Setting minimum ‘parcel sizes’ to minimise erosion of performance for small trades and brokerage, and reduce additional work for accountants;
  • Set default securities for the sum of these smaller parcels to be traded into, thereby keeping the clients fully invested; and
  • Applying the 45 or 365-day rule for parcel sale override.

“Those are the types of factors that I would consider are important when considering portfolio tailoring for clients, with the main areas revolving around tax and ethical considerations in the portfolio construction process,” says Shannon.

“And when it comes to portfolio construction and tailoring, it’s exciting to see the role technology innovation is playing in providing improved outcomes for both advisers and their clients.” 

About

Shannon Bernasconi is Managing Director and Co-founder of WealthO2.

Shannon was a presenter at the IMAP’s InvestTech 2020 conference.

Contact us

Email
This email address is being protected from spambots. You need JavaScript enabled to view it.

 

Phone
0414 443 236
 

 

  Address
Suite 404, Level 4, 165-167 Phillip Street, Sydney NSW 2000