Client engagement remains key

With over 10 years’ experience in implementing asset class models and multi-sector portfolios on behalf of IFAs across multiple managed account platforms, who better to share his insights on the important considerations for any business transitioning across to a managed account business model than DFS Portfolio Solutions principal, Stephen Romic.

Speaking at the IMAP Investment Forum on 30 October 2017 – with concurrent presentations in Sydney, Melbourne, Brisbane and Perth – Romic said managed accounts were simply a better way for advisers to manage client investment portfolios.

“Managed accounts provide consistency, they reduce the burden of SOAs and ROAs, and therefore reduce the incidence of human error occurring,” Romic said. “Managed accounts provide operational efficiencies and improved compliance, which all have the potential of improving client outcomes.”

In 2008, DFS Portfolio Solutions’ business model transitioned across to managed accounts, offering an in-house investment solution, rather than outsourcing to a provider. Romic said the business saw immediate gains in operational efficiency and he attributed the success of this transition to client engagement.

It’s essential that you communicate with your clients and educate them about managed accounts.

Stephen Romic
“Well before we began the transition procedure, we engaged with all our clients and got them involved in what we were doing,” Romic said.

“This took place 12-18 months beforehand. We carefully explained to clients what managed accounts were, why we were implementing this solution, and the benefits this service would bring to them and the business. Our clients really embraced this.”

Romic emphasised that managing client expectations was key for any business transitioning to managed accounts.

“It’s essential that you communicate with your clients and educate them about managed accounts. This can be done through newsletters, phone calls and face-to-face meetings. Delivering a positive experience for clients is crucial in this transition process.”

Romic believed that as investors increasingly demanded greater transparency and cost-efficiencies with their investments, managed accounts were well placed to offer genuine differentiation as an investment solution.

“The product-based approach to investing will come under increasing pressure and will be subject to future regulatory scrutiny,” Romic said. “That’s why investment solutions are becoming increasingly important."

“Transitioning across to managed accounts allowed our business to evolve from the traditional product-based approach to investments, to a business that can now consider the behavioural biases of investors when implementing investment solutions for them.”

Also speaking at the IMAP Investment Forum was Morningstar Head of Discretionary Equity Strategies – Asia-Pacific, Joel Bloomer. Bloomer provided an interesting presentation that included explaining the type of equity portfolios best suited to standalone SMAs or as part of multi-asset class portfolios.

In doing so, he referred to Warren Buffet’s ‘moat framework’ when building conviction in concentrated portfolios.

“At Morningstar, we use the ‘economic moat framework’ when identifying stocks that are at least risk from competitors, thereby protecting their growth opportunities,” Bloomer said.

“For example, the Commonwealth Bank of Australia is a stock position that we consider has a wide moat around it, whereas Wesfarmers, which is coming under pressure from its competitors, has a narrow moat. A company like Super Retail Group (Supercheap Auto etc) has no moat around it and, as such, is highly vulnerable.”

Bloomer said the use of ‘moats’ tended to stabilise portfolios, and he believed the use of the economic moat framework worked well in the managed account environment.

The IMAP Investment Forum is a community of interest for dealer group researchers, investment teams and independent researchers, where they can hear and learn from specialist portfolio managers and chief investment officers of advisory businesses. These experts and advisory professionals provide their insights on the practical issues involved in implementing managed accounts in an advice business.

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