2 approaches to technology – 2 business models

Welcome to Managed Account Perspectives – IMAP’s quarterly publication to capture and preserve the enormous amount of information that’s now pouring out of the managed account profession.

One of the key drivers of the development of managed accounts is the availability of the technology that makes it possible to manage dozens or hundreds of portfolios based on predetermined portfolios.

IMAP has developed InvestTech 2017 to showcase the technology available to advisers and the potential the separate approaches offer.

A recent netwealth technology report1 asked advisers what technology would “have the greatest impact on financial advice practices in the next five years”. More advisers (38 per cent) answered ‘managed accounts’ than any other technology they could think of.

A separate question in the netwealth report asked about current and intended use of managed accounts and 57 per cent of advisers either already use these or are intending to do so in the next 18 months.

Since managed accounts are, more than most other aspects of the advice profession, driven by the capacity of the technology employed, there are some key decisions to be made by advice groups about the technology that underlies their adoption of managed accounts.

It boils down to two choices:
  1. Rely on an integrated technology and operations service as part of a broader offer; or
  2. Manage each component – technology, operations and often legal structure – independently.
These can be expressed in the following two statements:

“Yes, it’s important, but someone is going to provide it for me.”
This is the majority view amongst advisers. Someone – most likely a platform – is going to provide the technology that enables SMAs, or potentially MDA services, to be utilised in each adviser’s office.

“It’s important, so I’m going to be in control of the technology decision.”
This view represents those advisers who, most likely, have a more diversified approach to managing the technology in their practice. They are more likely to be using MDA services, especially ‘off platform’.
Neither view is necessarily better than the other.

The platform based view is a business model that has served advisers well for several decades. As the needs of investors and advisers became increasingly sophisticated, the platforms developed from a managed fund only investment selection, to equities and fixed income investments. Lately, many have added digital engagement and reporting tools.

Portfolio management technology and operations to support SMAs or MDA portfolios is another step along that path. It’s a more complex one in that supporting SMAs has involved not just technology but also the legal structures of SMAs, the operational management of bulk trading and rebate processing, and the due diligence processes where dealer groups want to offer their own portfolios as managed accounts.

The full control model, where the licensee takes responsibility for the implementation and operation of the technology that supports managed accounts, is generally associated with a business model that takes more control of the total service offer to clients. Generally delivered through MDA structures, the decision to invest in portfolio management technology is also a decision to assume operational, legal and investment management responsibility.

Of course, an ‘off platform’ business model makes it a necessity to have this type of control.

In developing InvestTech 2017, IMAP wants to highlight the benefits and costs of each approach to technology.

In addition, we want to showcase the impact of that other technology driver, the emergence of the fintechs.

New functionality, lower operating cost models for clients and advisers, and direct client engagement are all hallmarks of many of these emergent providers. And they’ll be on display as well at InvestTech 2017.

All the best.

Toby Potter | Chair
  1. netwealth Advice Tech Research Report 2017 Edition.
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IMAP has developed InvestTech 2017 to showcase the technology available to advisers and the potential the separate approaches offer.

Toby Potter

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