In the last year alone, interest in using managed accounts increased sharply at the expense of direct equities and managed funds. We believe this growth is set to continue, with advisers expecting a share of new client inflows to managed accounts to double in the next three years.
Managed accounts have been around for close to two decades, so why the sudden increase in popularity?
What’s clear is that the recent uptick in interest is attributable to not only the myriad of benefits managed accounts offer but also the direction that the industry is moving towards – one of further efficiency, transparency, trust and professionalism.
Today, more advisers and their respective firms are looking for products and services that serve to create practice and compliance efficiencies, as well as to enhance their value proposition and affirm their role as strategic financial advisers, responsible for managing their clients’ financial affairs and helping them achieve their objectives.
With drivers like this, managed accounts continue to gain momentum as a suitable option.
It’s worth highlighting some of the key benefits to understand just how powerful managed accounts can be, particularly when used to their full potential.
Transparency and control
The structure of managed accounts serves to provide optimal transparency and control for advisers and their clients. Unlike managed funds, clients maintain direct ownership of their investment portfolio and have full visibility of their entire portfolio holding, including the direct equities and their weightings.
Clients can also take advantage of the tax effectiveness managed accounts offer. When holding securities in a managed account, the investor’s tax position is their own and is not affected by the actions of other investors or transactions made prior to their investment.
So in effect, when working closely with their adviser, clients are empowered to build a diversified portfolio that is not only in accord with their personal values, but also one that is far more tailored to achieve their individual financial needs and objectives.
The transparency and control factors are elevated further with advisers having the choice to either utilise the expertise of their own in-house investment teams or alternatively leverage the expertise of an extensive range of global and domestic investment managers.
Ultimately, these transparency and control benefits allow advisers and investment managers to take advantage of emerging opportunities and manage risk in a dynamic and convenient manner.
Efficiency and cost effectiveness
Managed accounts continue to be a popular option due to their ability to deliver a broad range of efficiencies, ranging from practice management, with advisers on average saving 12.4 hours a week on portfolio management tasks, right through to advice delivery, implementation and execution.
By using managed accounts, advisers are less distracted by unnecessary administration, with time savings invested back into enhancing their personal skillset, ongoing client engagement, meeting new or prospective clients and practice development.
These gains empower advisers to focus on tasks that truly add value to their clients, while outsourcing parts of their value chain that are better served by professional investment managers, which can help to increase automation of an adviser’s back office functions.
This change in focus is also giving advisers increased negotiating powers to secure competitive pricing for their clients, making the managed accounts proposition even more appealing.
The efficiencies and the benefits of preferred pricing is further magnified for managed accounts offered through platforms – in fact, among advisers recommending managed accounts, separately managed accounts on platforms is the preferred way of implementing managed accounts for 79 per cent of advisers.
What is clear is that advisers, platform providers and product manufacturers alike recognise that clients today expect real-time service that is far more tailored and compatible with their holistic needs – from a financial, lifestyle and an engagement perspective.
There is, however, clear potential for even more streamlined and competitive solutions. The continued popularity of managed accounts is going to further propel existing players, as well as provide significant opportunities for new entrants to focus their time and energy on expanding their product and technology capabilities in order to keep up with the evolving needs of their clients in an increasingly connected and digitalised environment.
Improved client outcomes
In seeking to capitalise on the increased functionality, thanks in part to transformative platform technology, as well as the transparency benefits and efficiency gains, industry research shows that advisers are increasingly utilising managed accounts as a whole of portfolio service across their broader book, with the vast majority acknowledging that since embracing managed accounts, their clients’ financial outcomes have improved.
No longer are managed accounts perceived to be solely suited for high net worth clients, rather their suitability extends to lower balance clients, as advisers continually look for greater opportunities to deliver timely, cost-effective and quality services.
The benefits of managed accounts serve to assist advisers to provide financial services, and in particular advice, in a more streamlined and compliant manner. The cumulative effect of all of this is that advisers are empowered to focus on what they do best – providing strategic advice, building client financial literacy and delivering client outcomes.
As a result, the conversations with clients are more meaningful, the relationships are deeper and client engagements are far more sophisticated.
Managed accounts are proving to be an effective option for a range of clients and have the potential to provide a more effective alignment of values throughout the entire advice and service value chain. In turn, clients’ expectations of transparency, efficiency and control are met. An outcome that will clearly go a long way to forge even deeper long-term client relationships.
Eylem Kamerakkas is head of Managed Accounts Product at Macquarie Wealth Management.
The data in this piece comes from the Investment Trends Managed Account Report – February 2018, based on a survey of 841 financial planners.