Having evolved from a niche sector a decade ago, managed accounts have become a key part of expanding financial planning businesses.
The growth of the sector has not happened by accident. Whether by way of a separately managed account (SMA) or managed discretionary account (MDA), managed accounts are an efficient channel that brings together the skills of multiple players in the wealth management chain.
Importance to Clients
For the end user — the client — managed accounts are a way of leveraging the know-how of professional investment managers and asset consultants, while benefiting from the streamlined reporting enabled by technology-driven advances.
A survey of 744 financial planners, the State Street Global Advisors SPDR ETFs/Investment Trends 2019 Managed Accounts Report revealed planners who utilise managed accounts appreciate the benefits to the end-client (79% cited one or more advantages for their clients).
79% of financial planners using managed accounts appreciate the benefits managed accounts deliver to clients.
Furthermore, of the respondents currently using managed accounts, 72% said their clients valued the transparent direct ownership structure of these solutions.
The Enhanced Value Proposition for Financial Planners
But almost as many respondents (74%) called out the various business benefits, such as reducing the burden of compliance and freeing up time for value-added advice and practice development.
Beyond the ‘headline’ advantages, the survey reveals lesser-known benefits of the managed account solution that are valued by the planners.
Enhanced transparency — the ability for clients to easily access the details and performance of their investment on a single ‘dashboard’ — rates especially highly for financial planners and their clients.
“Transparency is the greatest asset of managed accounts,” says one planner. “Clients like to see and know what they own. The higher the net worth, the more they want to know.”
Transparency is the greatest asset of managed accounts.
Indeed, clarity is crucial in any investment structure. But so is the ability to adhere to the client’s financial goals. On this note, one-third of users said managed accounts enabled them to focus more intently on achieving their clients’ goals, while 30% noted that the investment returns of clients increased.
One-third of users said managed accounts enabled them to focus more intently on achieving their clients’ goals, while 30% noted investment returns of clients increased.
Of the financial planners currently using managed accounts, 41% said they did so to access the skills of these professional managers.
Furthermore, 18% of planners said they recommended managed accounts because it aided the provision of “goals-based” advice to clients. In other words, it supports providing financial services through holistic discussions about investment objectives, rather than investment-by-investment feedback.
Given the enhanced value proposition, close to half of the planners said that client engagement has increased.
46% of financial planners said managed accounts increased client engagement.
“We can spend time on telling clients what’s going on with their money, rather than having to churn out statements of advice to make switches all the time,” one planner says.
As well as enhancing their value proposition to clients, planners are also attracted to managed accounts for client tax benefits, such as the ability to switch managers without selling assets.
When compare to a manage funds structure, managed accounts differ as investors will have an individual cost base for each investment within the managed account investment wrapper. As a result, their position is not influenced by collective transactions in the same way a managed fund is. Further, a managed account structure enables beneficial ownership of the underlying asset, and this enables the client direct access to dividends and imputation credits.
An Ever Evolving Offering
The ongoing evolution of managed accounts depends on making these solutions suitable for a wider client demographic.
In the past, they were perceived as more suitable for high-net worth individuals, but with the cost and scale benefits conferred by technology, this is rapidly changing and increasingly they are becoming suitable for millennials and low-balance clients.
More and more planners are recognising the benefits of these solutions over investing in shares directly. For instance, the proportion of planners who recommend direct shares has fallen for five consecutive years (from 57% to 44%) while usage of managed accounts has grown from strength to strength (20% to 35%).
The themes of managed accounts as transparent and low-cost vehicles are also borne out by what underlying investment the planners and clients prefer in the first place.
The most desired products fall under four key ‘clusters’: international equities, ethically friendly (ESG) products, income generated plays and special situation stocks.
The survey shows exchange traded funds (ETFs) are increasingly preferred as a cost-effective way of achieving index (non-active) returns across a range of asset classes.
Asked about their preferred allocation within managed accounts (if all types of underlying assets were available), users would allocate 15% to ETFs, on average.
“Providers can grow the use of managed accounts among current users by addressing specific product gaps,” the report says. “In addition to enhancing their offerings at a client segment level, providers can focus on specific investment strategies or asset classes.”
There’s no doubt clients appreciate having an investment product that benefits from the wisdom of professional investment managers, without having to be involved in each and every decision.
The views expressed in this material are the views of the Australian SPDR ETF team through the period ended March 31, 2019 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. The February 2019 Managed Accounts Survey conducted by Investment Trends. This report is based on a detailed quantitative online survey conducted between 3 December 2018 and 1 February 2019. The survey included over 760 financial planners, including RG146 compliant accountants, and dealer group managers who personally provide advice in Australia.
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