Momentum continues at a rapid pace in the adoption of Managed Accounts, the days of them being a niche service offered by only limited advisers is long gone.
One solution, available for dealer group licensees and advice practices to efficiently implement their investment proposition and ‘industrialise’ their model portfolios, are private label managed accounts.
The benefits of private label solutions can be significant through tailored client outcomes and increased efficiencies.
However, a transition to a private label can be a significant undertaking, as it is a “whole of business” solution that looks to bring together advice, investment management, technology and most importantly the client experience.
This guide aims to answer the key questions you should consider when considering if private label managed accounts are right for your business.
- Use of managed accounts has surged in the last 4 years with $50 billion in funds under management in Australia, according to IMAP figures.
- Almost 40% of Australian advisers are now using some form of managed account according to the Netwealth AdviceTech Report
- Private label managed accounts offer benefits including transparency, equitable client management and back office efficiencies
As technology evolves, so too does the prevalence of managed accounts as part of advice businesses.
From their US genesis in the late 1980s as a way of efficiently running equity-based client portfolios, new technology means a less resource intensive approach that’s scalable.
Establishing a ‘private label’ on your preferred super and investment platform is a type of managed account offering access to an external licence (often provided by the platform) and the freedom to develop models specific to your client needs and investment styles.
Netwealth head of Investment Management and Research, Paul O’Connor, recently joined a webinar Past. Present.Future. The evolution of managed accounts with the Institute of Managed Account Professionals (IMAP) to discuss the evolution of managed accounts, the shift to private label managed accounts, and key benefits and considerations for advice businesses transitioning to a managed accounts structure.
Who is using managed accounts?
The Netwealth AdviceTech 2018 Report found that almost 40% of Australian advice businesses are using a managed account in some form, with usage set to increase to over 60% in the next two years.
Paul says there has been phenomenal growth in the last four years across the availability and use of platforms offering managed accounts, and current use is only scratching the surface.
“The Australian managed accounts market is now over $50 billion up from $12 billion around 4 years ago,” he says, referring to IMAP figures.
“The potential for growth in managed accounts is clear when you consider that $50 billion is only a small percentage of total platform assets. That’s why we’re seeing platforms prioritise the development of managed account services.”
A shift to private label managed accounts
The evolution of managed accounts structures for advice businesses includes a shift from separately managed accounts (SMAs) focussed on direct asset portfolios, to marketplace demand for private label managed accounts.
“The real demand in the marketplace is for a structure where advice businesses use a number of SMAs to efficiently run their client investment portfolios. The demand is pushing development of smarter features and reporting so fully diversified model portfolios can be run within an SMA structure,” he says.
Paul says smart advice businesses recognise private label managed accounts as more than a bespoke part of investment advice offering. Streamlining portfolio management irons out back-office inefficiencies and enable advisers to service more clients.
“The private label approach will transform a financial advice business,” he explains.
“It’s a business transformation that cuts across the advice process, investment management, technology and customer engagement.”
Streamlining the advice process
Depending on the breadth of model portfolios an advice business is running, from conservative to high growth, there remains a need for personalised advice to manage and administer ongoing. Managed accounts streamline the advice process reducing the need for ROAs and time intensive client approvals to rebalance a portfolio.
“Within a managed account, this rebalancing happens simultaneously for all of the clients, so clients are treated equitably,” says Paul.
“Greater efficiency also opens up potential tax benefits¾there’s no inherent unrealised capital gains which you may encounter using a managed fund.”
Investment management capabilities
Working within a private label managed accounts structure enables more automation of a model portfolio.
“More efficient portfolios allow for an increase in the bespoke portfolios that can be managed by an advice group¾for example you might be able to run an accumulation style portfolio and an income-based portfolio,” explains Paul.
“This approach puts the onus on the manager to have proper governance in place, with an appropriate investment committee and resourcing to run that model.”
The right technology
Choosing the right platform for your private label managed account requires analysis of platform investment functionality.
“The right platform lets you tailor SMAs pending client’s needs so you’re clearly articulating your investment philosophy and style so your value proposition is obvious,” Paul says.
“Technology allows scalability of your approach¾shifting from resource-intensive management accounts that were traditionally managed using spreadsheets is the key to the whole growth of the industry.”
Changing customer engagement
A managed accounts structure offers a new level of transparency, including a clearer view of the underlying assets within the portfolio.
Paul explains that this transparency and accessibility to information changes the way advice businesses must communicate with clients.
“It might be necessary to expand scheduled reporting with an ongoing dialogue,” he says.
“Rather than a monthly performance report on how a fund has performed, it needs to include an ongoing conversation about why a particular share has been bought or sold.”
Choosing a platform
Choosing a third-party partner to provide your private label accounts platform means considering a range of features.
“Does it have the investment options you need? Is it a genuine non-conflicted investment universe, or more restricted universe with in-house asset management capabilities,” he says.
“What are the underlying assets you can use in your models? Can you use equity SMAs, managed funds, direct ASX listed assets and international equities? What level of customisation and performance reporting can you offer your own clients? These are all crucial elements to choosing the platform that works for your business now and in the future.”
Paul suggests looking at a platform with an emphasis on governance and compliance.
“If you’re going into partnership with a third party, you have to minimise the risk of tarnishing your own brand.”
The future for advice businesses and private label accounts
The shift to private labels is likely to increase as advisers focus on building better, more efficient businesses and delivering better client outcomes. But with that shift to efficient (and sometimes) automated systems, comes a need for the industry to look to new ways of demonstrating their value in the managed account market.
Paul says investment by platforms in managed account services is key to increasing customisation and sophistication of managed account offerings. Some platforms have spent very little on managed accounts administration functionality whilst others have invested significant capital and resources.
“Everyone in the marketplace has slightly different portfolios and slightly different needs from an administration perspective. The platform you choose must continually improve the client experience and enable specialist portfolio development,” he says.
Want to learn more about private label managed accounts