2020 and Beyond: Current and Future Managed Accounts Trends
Insights from the Investment Trends 2020 Managed Accounts Report, where we sought to better understand financial planners views towards managed accounts.
Managed accounts are on the rise with usage doubling in the last five years.
Managed accounts can save financial planners priceless resource – time.
Partnering with Investment Trends, the eleventh annual SPDR ETFs / Investment Trends 2020 Managed Accounts Report sought to better understand the usage and trends in managed accounts amongst financial planners. The insights will help you take your practice forward, and reveal how your peers are using these solutions in Australia.
A survey of 960 financial planners revealed:
Forty per cent or over 7,000 financial planners in Australia are using managed accounts, an increase of 14% since 2019.
One third of managed accounts users believe these structures are appropriate for their low balance and millennial clients.
Sixty eight per cent of managed account users have a preference to hold ETFs within a managed account.
Financial planners continue to believe their clients appreciate managed accounts for their transparency, cost-efficiency, access to institutional-quality investment managers and — importantly— one third of financial planners acknowledge it’s a core portfolio holding for their clients.
Migrating existing clients is perceived as the largest hurdle to successfully implementing managed accounts in a financial planners’ business.
Managed accounts saved financial planner 13 hours per week, on average.
Separately Managed Accounts (SMAs) lead the way with 85% of users implementing managed accounts via this structure.
Client Benefits Increasing Demand for Managed Accounts
The use of managed accounts has expanded over the last decade, as more and more financial planners and their clients become aware of the myriad of advantages these efficient investment structures offer.
Approximately 7,200 financial planners, or 40% of the Australian wealth management industry, are now using managed accounts. This is an increase of 14% since 2019 and 100% since 2015. Alongside current managed accounts users, is an additional cohort of potential-users (26%) who are considering recommending these vehicles for their clients in the future.
When asked why they recommend managed accounts, financial planners primarily cite the benefits experienced by the end client (84% cited such reasons), including portfolio transparency, cost effectiveness, access to professional funds management, and an effective way of accessing direct shares / ETFs. In addition, many users see managed accounts as an ideal solution to meet client best interest obligations (26% cite this).
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Managed Accounts Can Save Planners a Priceless Resource-Time
Financial planners save 13 hours per week or 16 weeks per year1 from using managed accounts, on average.
Our latest proprietary global research, Model Portfolio Solutions and the Client, conducted by the SPDR Global Practice Management team showed on average, planners are spending more time on portfolio management (23.1%) than client-facing activities (14.7%) or prospecting new clients (11.3%). The time spent on these activities does not reflect the priorities identified by planners such as deepening relationships with existing clients and acquiring more clients.
With a saving of up to 13 hours per week, financial planners are using this extra time to focus what matters most: supporting client goals, engage clients more frequently, and to service a larger client base. Advice practices with five or more planners tend to benefit the most from managed accounts with respect to time saved.
This time saving enables financial planners to transition to financial coaches. This has never been more important than during volatile markets, with time spent communicating portfolio changes to clients reduced on average by 84 minutes (67 minutes for a planner using managed accounts vs 151 minutes for the average planner). Investment administration work is also halved for managed accounts users (from 229 minutes to 119 minutes).
Another beneficiary of time gained is the practice, with financial planners using the additional time to focus on marketing to attract new clients (33% cite this) and developing a business strategy (29%).
Encouragingly, the longer managed accounts are implemented in a planners practice, the greater the potential time savings – after 2 years of usage, financial planners saved up to 4 extra hours per week compared to their initial year of use.
Managed Account Used Across All Client Demographics
Managed accounts are not just for the wealthy. More than a third of managed account users believe that these structures are suitable for lower balance clients with less than $100,000 in investable assets, while 30% say they are appropriate for millennials. Financial Planners who use SMAs are more likely to cite managed accounts as appropriate for lower balance and millennial clients – a trend that is set to grow if platform fees and minimum investment requirements continue to decrease.
Across the spectrum of age and wealth, financial planners most often consider managed accounts to be suitable for their accumulator clients between the age of 35 to 49 (42% cite this) and affluent clients with investable assets of $250,000 to $1 million (63%). Furthermore, 45% of users also believe managed accounts are also appropriate for their high net worth clients with investable assets in excess of $1 million.
Greater Diversification Requested in Investments
The Investment Trends survey shows ETFs are increasingly preferred as a cost-effective way of achieving index (non-active) returns across a range of asset classes, with 68% of users preferring to hold ETFs within a managed account.
When looking at the broader investment mix, 56% of financial planners are currently recommending multi manager or multi asset managed accounts. Furthermore, 85% access managed accounts via an SMA.
For lower balanced clients, one third of users prefer two to five investment managers within these multi asset solutions. For their high net worth clients, there is greater preference to have 10 or more managers, suggesting more complex managed accounts tend to be preferred.
What Does the Future Hold?
Managed accounts continue to gain popularity both locally and abroad. Early adopters such as the United States have already amassed US $6.8 Trillion in model portfolio assets.2 With the time savings from using managed accounts, financial planners can focus more on engaging with their clients, acquiring new clients and developing their practice. We expect more and more planners to transition to managed accounts, especially as clients become familiar with this investment vehicle and continued product prefiltration.
1 Based on the assumption that a financial planners works 37.5 hour per week, 48 weeks in the year.
2 Source: Cerulli Associates, U.S. Asset Allocation Model Portfolios Report, 2019
The SPDR ETFs / Investment Trends 2020 Managed Accounts Report was commissioned by Investment Trends. The survey was carried out between December 2019 and February 2020. The sample of 960 respondents includes RG146 compliant financial planners, accountants and dealer group managers who personally provide advice.
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