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 advantages of these efficient investment structures.
According to the State Street Global Advisors SPDR ETFs/Investment Trends 2019 Managed Accounts Report, clients use managed accounts for their transparency, direct ownership of shares, diversification and — importantly— access to institutional-quality investment managers.
There’s little doubt that managed accounts reduce a firm’s compliance burden and provide proven benefits to clients such as access to the best fund managers at a competitive cost.
However, the comprehensive survey of financial planners also reveals participants across the value chain need to do more to overcome the hurdles — perceived or real — that prevent further take-up of managed accounts.
A Booming Sector
The responses from 722 planners show that managed account take-up has doubled in the last five years, while fund inflows into these vehicles have tripled, on average.
More specifically, 35% of planners now say they use managed accounts, up from 30% in 2018.
As one planner comments, managed accounts have allowed the firm to focus on what matters to the client, rather than individual portfolio holdings.
“It changes the conversation entirely — (managed accounts) allow me to demonstrate value”
Not only are more planners recommending managed accounts, they are deepening their usage: In three years’ time, current users expect managed accounts to comprise over half their total FUA (52% on average, up from 31% today).
“Many industry-wide initiatives are helping planners towards this goal, with much fewer current users now citing self-education or reluctance from their dealer group as barriers to entry,” the report says.
Convincing the Doubters
Alongside current managed accounts users, is an equal-sized cohort of potential-users (32%) who are considering recommending these vehicles in the future.
Of these potential users, about half said nothing would sway their “current level of involvement”, which suggests the other half are open to persuasion.
Industry wide, a mere 4% said they previously used managed accounts but discontinued doing so. This low attrition suggests there is continued gains from implementing managed accounts in one’s business.
While satisfaction with investment platforms remains high, the survey suggests that planner satisfaction is down in respect to their main managed account platform’s value for money and overall capabilities in 2019.
While there’s still high satisfaction with the service and value provided by platforms’ managed accounts capabilities, a large proportion of planners (79%) are willing to shift providers for platform enhancements. Among the factors that might persuade them to change their platform provider are cost effective options for low-balance clients, CGT modeling tools and the ability easily to feed client data to planning software.
“Providers must stay vigilant as the majority of planners can be enticed to switch their managed account platform,” the report says.
Breaking Down the Education Barriers
Among the key hurdles to greater adoption, potential and current users of managed accounts alike cited lack of knowledge as a key impediment — both on the part of themselves and their clients.
The survey shows that 24% of current users and 38% of potential users saw client education as a major hurdle in broadening the use of managed accounts.
Reflecting this, 82% of potential managed accounts users rate their expertise as either ‘basic’ (67%) or ‘non existent’ (15%). Even among current users, 28% rate their knowledge as basic and a further 54% as moderate.
Users are asking for more education on the pros and cons of the use of managed accounts, the client benefits, the cost of managed accounts, tax advantages and how managed accounts work.
Another commonly-cited barrier was insufficient research provided by the investment manager.
“As I run my own AFSL (Australian Financial Services Licence) we require independent research prior to recommending a new separately managed account (SMA),” says one planner. “Very little research exists.”
The Millennial Challenge
So what are the catalysts for further managed accounts adoption? One strong theme — and opportunity — emerging from the survey is the need to make the offerings more relevant across all client demographics.
“Managed accounts users seek a wider product suite and more tailored solutions to better service their key client segments, especially their lower-balance clients and millennials,” the report says.
The survey shows that for clients with investible assets of
$100,000 to $250,000, 55% of current managed accounts
users view these solutions as more appropriate than a portfolio of direct shares.
Furthermore, 27% of current users think managed accounts are suitable for balances of $100,000 or less, while the vast majority (58%) believe it is appropriate for affluent clients (with investible assets of $250,000 to $1 million).
Other Barriers to Adoption
A notable majority of planners — 86% — acknowledge “client factors” prevented or limited their use of managed accounts in the last year.
Perhaps not surprisingly, the bread-and-butter issue of “fee sensitivity” was cited by 34% of planners.
Among current users, key barriers are pricing/fee structure (cited by 35%), the difficulty of migrating clients (31%) and the need to update compliance documents (26%). On the other hand, potential users would like to see reduced platform fees, appropriate training courses and better/more research on managed accounts.
When asked what managed account features on platforms would be useful, 40% valued cost-effective options for lower balance client, 34% cited “good performance reporting” while 30% sought quick and easy records of advice for SMA switching.
Among non-users, the most valued measures would be reduced platform fees, appropriate training courses, the ability to service low-value clients and more or better research.
“To cost-effectively improve overall satisfaction, providers can target the largest satisfaction gaps in managed accounts functionality on platforms: practice reporting tools related to managed accounts, CGT tools and integration with the broader platform,” the report says.
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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