Six questions to consider when implementing a managed account solution

5 mins read  
Date: 14 October 2016

Managed accounts: A whole of business transformation tool

Managed accounts are increasingly popular with a growing numbers of advisers choosing to access professional portfolio management for their clients using the transparent, tax efficient and customisable structures that managed accounts can provide.

Managed accounts offer more control, particularly for clients who want more transparency and better access to the assets in their portfolios. They also provide flexibility that allows you to individually tailor and customise the portfolio to better suit each client's needs.

If you are considering managed accounts in your business, understanding the different areas that you need to work through should help you make decisions.

By undertaking an examination of the appropriateness of managed accounts for your business you will likely be clearer about the outcomes you are trying to achieve for your clients and the areas of efficiency that you are seeking.

If you are thinking of using managed accounts in your business there are a few questions you should consider to make sure you implement the solution that best meets your needs, and those of your clients. 


Six questions to consider when implementing a managed account solution  

1.What are your business objectives?

A common reason advisers adopt a managed account solution, especially those who prefer shares and ETFs, is that it frees up a significant amount of time around researching assets, portfolio administration, implementation and corporate actions on portfolio assets. The requirement for Record of Advice documents (ROAs) diminishes, as does administration focused communications with clients, allowing more time with clients to be spent on conversations around value adding strategies.  

Furthermore, the speed with which implementation occurs once a portfolio decision has been made makes it is easier to take advantage of opportunities in the market, or protect from risk of market downturn.

Start by asking why you are considering a managed account solution.

  • Is it about improving back office efficiency?
  • Is it about outsourcing non-core capabilities so that you can spend more time with clients?
  • Is it to achieve greater consistency in your offer? Is it to improve customer engagement?
  • Is it to achieve better client outcomes in general?
  • Is it to rely more on professional investment managers who have similar strategies to your own?

 

2. Which customers are best suited to managed accounts?

Managed account customers are often defined by characteristics that are largely attitudinal and not easily determined by life-stage or demographic.

These customers typically want to have a sense of control while acknowledging that they do not have the time to devote to become experts.

Additionally, they often want to have a connection with their investments rather than having a portfolio that lacks transparency due to the mechanics of the investment model. Managed funds, for example, do not often provide a full list of assets within the portfolio. Investing via managed accounts, therefore, can resolve some of these client needs by providing flexibility and transparency.

To determine whether managed accounts are suitable for your customer base, you should consider a customer-needs framework like the Netwealth 'Resiliency and Literacy Framework'.

Using this framework will help you identify the clients in your database that can be categorised as 'Aspirers' and 'Explorers' and are thus well suited to a managed account offer. These cohorts typically want to be able to understand and connect with their investments on a deeper level – they want to be able to see the assets in their portfolios to learn about them or critique them.

Guide: Understanding investors better

Find out more about the Resilience and Literacy Framework that provides a unique and simple way to understand your clients financial needs and preferences.

Download guide


3. What is your investment philosophy?

Managed account solutions provide access to a broad range of investment models and managers offering a variety of strategies and options for you and your clients.  They provide access to models holding ASX 200 shares, small and mid-cap shares, Australian listed debt, diversified portfolios and international shares. However, managed accounts in isolation do not provide the breadth of investment options or capabilities that the managed fund universe can provide.

Managed accounts, therefore, should not replace all other investment vehicles and can work harmoniously with direct equities, managed funds and/or ETFs in a client's portfolio.

Before determining whether a managed account solution is appropriate for your business you need to have certainty and clarity about your investment philosophy.

  • Is cost a key driver in selecting your clients’ investment portfolios?
  • What is your approach to passive vs. active management?
  • Do you believe in dynamic, strategic, or tactical asset allocation?
  • How do you define return and risk, and how do you benchmark them?
  • Do you have strategies that cannot be replicated by a managed account?
  • Have you got preferred investment managers and do they have a managed account offering?

 

4. What structures should you consider?

There are many acronyms for all of the different structures that fall under the classification of a managed account. They include SMA, IMA, UMA, and MDA, among others.

Though the list is quite extensive, these are typically marketing terms which describe the various legal structures and functionalities within that particular managed account.

An MDA, or Managed Discretionary Account, for example, is an ASIC-defined term to describe a compliance regime whereby a client hands over the discretion responsibilities for that portfolio to an MDA operator. Each type of managed account has a slightly different structure that you should familiarise yourself with before deciding upon the right solution for your business. You will need to investigate the administrative requirements, legal consequences and cost implications of the different managed account types to ensure they align with your required outcomes.

 

5. Buy, build or partner?

Depending on the size and internal investment expertise of your business, you’ll have to consider whether you should utilise the managed account investment models available on your chosen platform's menu.

Alternatively, it may be worth exploring whether you establish your own private label managed account using internal resources and/or by outsourcing parts of the process.

Whether you buy, build or partner, it is largely dependent on your internal capabilities and skills, your access to capital and the speed in which you want to go to market with your offer. Setting up and maintaining a private label takes time, experience and a financial commitment. It also takes dedication towards continued integration and roll out of managed accounts in your business, which can involve training staff and improving processes. It is not the ideal solution for every advice business.

Read the GPS Wealth case study to understand their decision making process in deciding whether to buy, build or partner.

 

6. How to choose your managed account solution provider?

To be truly beneficial to advisers and their clients, it is important that a managed account provider has a robust legal, administration and support structure.

There are many behind-the-scenes procedures to make running managed accounts seem seamless for advice practices and dealer groups that are important to understand when you select a platform provider.

Before choosing a managed account provider, it is important to consider whether the provider meets all your business needs. Some questions to consider include:

  1. Can your solution provider manage the calculations effectively?
  2. What is their rebalancing engine like? Do they consolidate and net trades?
  3. Will the provider cater to the investments you want? Can you blend different model managers?
  4. Can the clients blended portfolio be customised at the client level?
  5. Efficient trading is also important. You can lose a lot of performance and efficiency by poor implementation. And there are obvious benefits to being able to tell a client exactly when a trade has been made and why.
  6. The quality of reporting offered for your managed accounts is another point to consider when choosing a provider.
  7. Finally, you need to think about super and the integration the provider’s broader platform offers. Find out if the managed account provider you are considering offers an integrated, seamless, scalable superannuation and investment solution that is supported by great service and ongoing development.



Disclaimer

This information has been prepared and issued by Netwealth Investments Limited (Netwealth), ABN 85 090 569 109, AFSL 23097, ARSN 604 930 252. It contains factual information and general financial product advice only and has been prepared without taking into account your individual objectives, financial situation or needs. The information provided is not intended to be a substitute for professional financial product advice and you should determine its appropriateness having regard to your particular circumstances. The relevant disclosure document should be obtained from Netwealth and considered before deciding whether to acquire, dispose of, or to continue to hold, an investment in any Netwealth product. While all care has been taken in the preparation of this information (using sources believed to be reliable and accurate), no person, including Netwealth, or any other member of the Netwealth group of companies, accepts responsibility for any loss suffered by any person arising from reliance on this information.