Crystal Wealth Partners is typical of the new breed of advisory businesses appearing on the financial services landscape – nimble, independent, non-aligned, experienced and solutions driven.

It’s therefore not surprising that prior to the business setting up in early 2012, its two directors – Tim Wedd and John McIlroy – took the time to really plan what the business would like, including how it would differentiate itself in a crowded and highly competitive market. And that included deciding on the type of solutions they wanted to offer to cater for the different needs of clients within the business.

The two directors drew on their combined experience of more than 50 years, including their long history in managed accounts, to come up with a business model they believed would satisfy the growing appetite of consumers for more transparent and cost-effective investment and financial planning solutions.

Fast forward five years, and Crystal Wealth Partners is firmly ensconced as an independent, non-aligned business that provides financial advice and investment management services to private clients.

In the advice space, it provides a full range of services: from superannuation to tax, from insurance to estate planning and retirement planning. And on the investment side of the business, Crystal Wealth Partners provides a managed account offering for clients, where it acts as the investment manager for client portfolios.

“At the time we started the business, we decided that managed accounts were probably the most efficient and most scaleable way to operate an advice business,” John says.

Implementation

So, how did Crystal Wealth Partners go about implementing a managed account service within the business?

“When you start from scratch, it’s important to take the time to work out some of the underlying key principles about what the business will ultimately look like, which for us, included how we would go about incorporating a managed account offering,” John says.

“Firstly, we wanted to be in control of the investment process, so we applied for our licence to become an MDA operator. We also have a sub-custody arrangement with a custodian.

“So, we decided from the very start that we didn’t want to rely on other organisations or their model portfolios. Therefore, for us, because we had prior experience in MDAs, it wasn’t really a big challenge for us to set up a managed account service,” John says.

“But, one of the things we definitely wanted to do was make sure we had different solutions for different clients.”

And for Crystal Wealth Partners, that meant having an MDA solution where clients’ assets were held by a custodian. This solution sat alongside another solution, which was still under the MDA structure, where clients who didn’t want their assets held by a custodian, could hold the investments in their own name.

So, today, as part of its managed account solution for clients operating under the MDA structure, Crystal Wealth Partners offers its clients two different versions, and it really depends on the type of client as to which one is most appropriate for their respective needs.

“We have one version that we refer to as our ‘optimum’ service, where client funds are held in model portfolios and the assets are held in custody - and we use the Royal Bank of Canada for this. This means that when we rebalance portfolios, we only have to do one transaction for investments, rather than multiple transactions. All our clients operating in this service have identical portfolios, depending on their risk level. So, there is consistency here with client portfolios.

“And the other solution we have is called our ‘tailored’ service. The investments for this service are not held in custody but are held in the client’s name.”

But either way, John says the difference between the two services are purely to do with ownership.

“Sometimes, clients don’t like the concept of having their assets held by a custodian, so that’s why we offer both solutions. And with our tailored service, our clients’ portfolios might look a little bit different, because we have tailored it to their individual preferences.

“But importantly, in both cases, the client is giving Crystal Wealth Partners the discretion to change their investments, which works well for us and our clients.”

Clients

Currently, Crystal Wealth Partners has about 300 clients operating under its MDA. The average client portfolio size is around $1.2 million, with the client make-up ranging from small business owners to self-funded retirees.

“About 70 per cent of the portfolios we look after would be self-managed superannuation funds (SMSFs). So, our MDA service sits very neatly with SMSFs. That means, with our direct approach to investing, our usage of managed funds is not high.

“With SMSFs, not only do we have individuals using them, but we also have family trusts, investment companies, deceased estates - in fact, any type of structure can use them.”

John concedes that the business does have a “handful” of clients who don’t operate on a discretionary service and while they actively discourage it, he says Crystal Wealth Partners does offer a solution for those clients if that’s what they really want.

“Our client portfolios include a whole mixture of asset classes - listed and non-listed assets, direct Australian equities, direct international equities, direct fixed interest, property REITs, ETFs and managed funds - it’s pretty much across the board. In fact, for model portfolios, anything that is unitised will probably work,” he says.

“In fact, when we set up the business, we wanted to make sure we could provide a solution to clients for direct international investments. So, one of the portfolios we run is a direct global equity portfolio, and that’s something that’s a little bit different to what most advisory practices do.”

Philosophy

The foundations of Crystal Wealth Partners’ investment management philosophy are built on a global view across all asset classes, with a particular focus on dynamic asset allocation to achieve long-term returns.

According to John, a key principle of the business is to implement a well-established approach for managing assets at all times, with the objective of controlling downside risk and minimising potential disappointments.

“It means having conviction of our ideas and selecting investments accordingly,” John says. “Where possible, we favour directly invested options rather than managed funds, as we believe this helps reduce the impact of ‘middle management’ charges, as well as controlling the overall costs of portfolio management for our clients.”

John says Crystal Wealth Partners’ approach to investment is to actively manage each portfolio in accordance with the client’s agreed risk tolerance, while also seeking out and evaluating alternative investment options that may provide good medium to long-term investment opportunities.

“We believe in active management,” he says. “The days of setting a portfolio and letting it sit are well and truly gone. So, for most clients, we adopt a goals-based approach to investing, where we’re targeting different client risk levels, for long-term returns, that the client is trying to achieve.”  

In addition, John says alternative asset classes, such as hedge funds, private equity, real estate and commodities, may also be used as a diversification tool to lower risk and increase returns where considered appropriate.

Technology

And what technology platforms does Crystal Wealth Partners turn to?

“That would be Multiport, which for us, is really an outsourced administration service,” says John.

“The Multiport system is essentially a portfolio administration system, but it also has the capacity to run model portfolios. Even today, I think Multiport is still the only service available that caters for SMSF administration, plus managed accounts, plus client reporting functionality – all in the one system. So, it’s unique in that respect.”

And what about the business’ tailored portfolios?

“Well, for our tailored portfolios, we have built some in-house proprietary technology to cater for those clients who are not in model portfolios. That in-house technology allows us to rebalance client portfolios quite easily.”

Challenges and changes

Like any business owner, the foreseeable future doesn’t come without its challenges for John and the team at Crystal Wealth Partners.

“Over the next 12 months, the one thing we need to decide upon is whether to invest in and develop our in-house technology or find an external solution that will better cater for our non-custodial clients - mainly in respect of rebalancing efficiencies. What we’re currently using is in-house built and it’s a little clunky, so we would like to find a better solution there.”

John is also mindful of the surge in interest of ‘robo’ advice, “so we’re also looking at this space and deciding whether we develop a solution for a different type of client who is looking to use a ‘robo’ offering”.

And in addition, John also adds that Crystal Wealth Partners is considering whether the business ‘white labels’ its service offering, given the changes that are happening within the industry.

“We actually had ‘white labelling’ in mind from the very start of the business, and our systems have all been built around potentially being able to do that,” he says. “But before we could white label our service, we wanted to have a track record in place, particularly from the investment performance side of things, so if other advisory groups wanted to adopt our model portfolios, then there was a history there.

“Now that we’ve built up a number of years of investment performance history, it’s probably a good time to revisit ‘white labelling’ – so, watch this space!”

Advice

And what of any tips for advisory firms considering rolling out a managed account solution for clients? John momentarily pauses before offering the following advice.

“Firstly, you need to look at how you’re going to provide an efficient solution to clients, while ensuring you make a decent profit margin,” he says. “Personally, the concept of continuously doing SOAs for clients and getting approval for every investment isn’t really an efficient solution, but that’s what a lot of advisory practices do.

“So, you need to offer an efficient solution to maximise your ongoing profitability.”

John’s second piece of advice is to be clear from the outset as to what it is you want to do and what you want to offer your clients, even before looking at any solutions. And importantly, this also means clearly working out what it is you don’t want to do within the business.  

“We decided at the start that while we were happy to do the MDA investment management and the process that sits behind that, as well all the compliance, we didn’t want to do the in-house portfolio administration. So, we outsourced that part of the business,” he says.

“It’s just so important that before launching into a managed account offering, you actually take the time to sit down and work out where you want to go with this type of solution for clients. Does that mean you want to provide multiple solutions like we have to cater for different client needs, or do you want to be more selective?

“That’s a question that can take a bit of time to answer, but it’s well worth asking.”