“Where it’s relevant and appropriate for parts of a client’s portfolio solution, we will use direct equities. This is where MDAs are essential, as it allows us to make changes quickly and execute trades without having to speak to the client first,” Julia says.
She adds that the other advantage of using managed accounts is that the business can more easily handle corporate actions and participate in IPOs, enabling the practice to efficiently allocate and implement them across its client base.
“So, that does allow us to open up opportunities in an efficient and streamlined way that you might not be able to do otherwise.”
Lighthouse Capital is a full service planning practice, operating out of two sites in Western Australia - Perth and Bunbury. There is a team of 18 staff, including five financial planning practitioners, with its service offering ranging from superannuation, SMSFs, investments, retirement planning, estate planning, budgeting and strategic advice and Centrelink, with a specialisation in aged care.
And with 98 per cent of its clients operating under an MDA structure, the average client at Lighthouse Capital has around $880,000 in investable assets. The practice manages just over 440 clients across the five planners.
“I think we’re a little bit different and unique,” says Julia.
“Our MDA service fits a particular market segment. We find that a lot of high-net-worth individuals are referred to us by accountants. These clients are looking for a more direct hands-on approach to the management of their portfolio. So, rather than working with a broker, they want to work with a team of professionals who can offer them the type of holistic advice they need.”
Lighthouse Capital uses XPLAN as its primary technology system, but beyond that, the business has custom built a lot of it’s own proprietary systems, including its MDA register and ‘brokers’ orders’ tool.
“Our systems are all centralised, they’re easy to use and you can access information easily. But if there is one area where we are looking to for further efficiencies, then it’s definitely from XPLAN.”
According to Julia, MDAs have always been part of Lighthouse Capital’s DNA, which includes the practice’s strict adherence to professional standards and compliance obligations.
“Because of the additional layer of trust between client and planner that is embedded within an MDA, we have a much tighter compliance regime with our licensee, Godfrey Pembroke. So, we have twice as many audits, which is a process that we welcome because we want to ensure that our compliance is absolutely first class.
“We renew the MDAs annually in bulk and we operate an in-house MDA register, which has all of the pertinent information relating to our MDA clients. This information is easily located in the one place, which is critical for ensuring that everything is kept in order.”
According to Julia, the MDA register, which is a licensee requirement, has actually been operating since the early 1990s by the founding partner of the practice. Overtime, this MDA register has been developed and enhanced by the practice.
Over the last couple of years, Lighthouse Capital has started to increasingly incorporate SMAs, ETFs, LICs and other diversified instruments into its suite of services.
“The SMAs are great because we’ve found that for some clients, it does enable us to give them access to a professionally managed solution with the benefits of direct share ownership, which sits quite nicely with that client base.”
But in what ways does Lighthouse Capital’s MDA offering reflect its approach to investment selection?
In answering, Julia refers back to an MDA’s two main advantages: efficiency and time-savings.
“One of the key benefits of operating MDAs is the efficiency and time-savings they provide, which enables us to reinvest that time back into the business. So, it allows us to spend a lot more time on the research side of the business, through our investment committee on the portfolio construction side, and on tailoring customised solutions for clients in a way that is still affordable and appropriate for them.”
Lighthouse Capital has an internal investment committee, comprising of seven members. It meets at least fortnightly, where it reviews macro-economic conditions, asset allocation settings and individual company news.
“We regularly have economists, leading fund managers and investment professionals feed into our investment committee process,” Julia says.
Part of that also includes sourcing additional information utilising a ‘brokers’ orders’ research tool made available via the practice’s licensee. This research tool provides the business with an overarching view of broker recommendations across the major stockbroking houses. This is updated fortnightly.
Lighthouse Capital also uses Morningstar and Lonsec research. And over and above that, it does its own due diligence, which includes trawling through company announcements and balance sheets.
“Our investment committee has developed a robust model that ensures ongoing, active management,” Julia says.
However, while she concedes this process can be onerous, it’s nonetheless a necessary one, which is fundamental to the practice’s client value proposition.
“For certain clients, it’s this attention to detail that they value. It’s what they are looking for, and they really like to know what they own, why they own it and where it fits strategically in their investment portfolio. So, having this hands-on approach does allow us to offer a more specialised solution for our clients,” Julia says.
“So, for me, the real benefit of a managed accounts solution is the time it saves you, and it’s this time-savings that you can reinvest back into the business.”
Part of that “reinvestment of time” is the practice’s approach to client communications.
“One of the things we do whenever we make an adjustment to a portfolio, is we take a proactive approach by writing to our clients to explain what we’ve done and why we’ve done it for them. This is not a requirement under the MDA, but it’s a conscious decision on our part to enhance the client experience. It’s an approach that our clients appreciate.”
However, while client communication is important for the business, Julia points out they are careful not to inundated clients with too much information.
“We are very selective in what we tell our clients,” Julia says. “Any adjustments we make that are specific to a client’s portfolio, we will write to them personally to explain what is happening. So, we average between eight to 15 client communications per individual per year.”
And what of generic newsletters or bulletins for clients?
“Again, we are very selective with client newsletters. In fact, we don’t do a monthly newsletter,” Julia says.
“Instead, we only send out newsletters when we think there is something pertinent and important to share with clients, like the recent 1 July changes to superannuation. By being selective in our client communications strategy, it means that when our clients receive correspondence from us, they know it’s worth their time to stop and read what we’ve sent them.”
Julia adds that in terms of the time-savings achieved by running a managed accounts solution, the business is also able to invest more energy into ensuring that the client annual review process is more detailed than would otherwise be the case.
“It provides us with the time to gather more information and detail around our clients’ progress, including how they are tracking against their goals, thereby delivering a service experience that the client truly values.”
Julia doesn’t foresee any dramatic changes happening to the business anytime soon, but she admits the business is increasingly using SMAs and other diversified direct investment solutions to satisfy the growing appetite of clients.
“I can honestly say that I wouldn’t change anything we’ve done with our managed accounts offering,” Julia says. “We’re really comfortable with our processes and how we implement and manage them. We certainly wouldn’t have the return on equity in our business without them.”
And it looks like Lighthouse Capital has cracked the winning formula.
In 2011, the practice was nominated for Godfrey Pembroke’s National Practice of the Year, and went on to win the award for excellence in financial planning and contributions to the financial advisory community.
And in line with the practice’s commitment to ongoing education and professional development for its staff, Julia was invited to attend Stanford University’s Executive Leadership Course in 2013.
Completing this prestigious program was a catalyst for Julia to implement further enhancements into the practice, which saw it take out the 2015/16 Godfrey Pembroke Premier Practice award, with the Godfrey Pembroke Adviser of the Year award going to Julia herself.
“These were all wonderful achievements that validated the direction our practice is heading, and the processes and procedures we have developed. Our MDA solution is an important part of that,” she says. “So, we must be doing something right!”
Indeed, for these sandgropers, it would appear they’re doing a lot right.