Managed Portfolios: A sound investment in your clients and your business

Hub24 considers the growing trend of managed portfolios overseas and the significant benefit they offer clients, advisers and practice staff.

It’s no secret that financial advisers are under increasing pressure to grow their business, which means focusing on revenue growth and profitability, as well as delivering quality financial product advice to their clients in the context of an increasing and ever-changing regulatory and compliance environment.

Most importantly, advisers are looking for ways to add value for their clients.

Following improvements in technology, managed portfolios have the potential to streamline administrative operations and deliver measurable gains to clients, and advisers, in terms of outcomes and costs.

Uptake of new technologies – especially those that challenge the status quo – can often be slow, and despite their many benefits, research by CoreData¹ suggests only one-third of advisers in Australia are using managed portfolios within their practice. A lack of understanding about the potential benefits available and how platforms are delivering these solutions is often a key impediment to their take-up, yet the concept is remarkably straightforward.

In essence, a managed portfolio is a package of a diverse range of investments, which may encompass traditional managed funds, and listed securities, including exchange traded funds and listed investment companies, as well as cash-based assets, such as term deposits, that is managed by a professional investment manager within the framework of an investor directed portfolio service (IDPS) or super wrap platform.

The client can provide a standing instruction in relation to the investments in the managed portfolio – so those investments remain investor directed. Those investments, however, typically reflect the investment strategy developed by a professional investment manager, who is responsible for the development and ongoing monitoring of the investment strategy of the managed portfolio. This means investment rebalancing and reallocation of investments within the managed portfolio can occur seamlessly as and when required.

There can be important benefits to the client of holding such a portfolio: exposure to a broad selection of asset classes enabling risk management and the pursuit of growth objectives, access to professional investment managers, and the potential for tax efficiencies that are not available through investing in traditional managed investment schemes.

For advisers, the ability to collaborate, outsource or partly outsource investment management in accordance with a client’s standing instruction, can provide new opportunities to reduce or remove some of the burden associated with records of advice (ROAs).

The ability to construct managed portfolios that can speak to the needs of different types of clients, while reducing the administrative burden, has the potential to enable a greater focus on the core function of providing holistic planning and strategic advice for their clients.

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