Shift to Managed Accounts Accelerates

SYDNEY, 7 April 2021 State Street Global Advisors, the asset management business of State Street Corporation (NYSE: STT) together with Investment Trends today issued a new report revealing financial planners are allocating more wealth into managed accounts than ever before, freeing them up to develop better client relationships and reduce administration time. 

The latest SPDR ETFs / Investment Trends Managed Accounts Report shows how financial planners were better able to react to market movements to benefit their clients with managed accounts during the volatility brought on by the global spread of COVID-19 from February 2020. 

The Report found 70 per cent of Australian financial planners, or up to 12,000 planners, are now using managed accounts or intend to, up from 44 per cent in 2012. 

Managed accounts are investment structures that are continually managed by professional wealth managers. The wealth manager can manage the investment structure following set investment objectives and can modify and rebalance the portfolio in line with that goal. 

Often these structures follow institutional style investment methods. The Report also found new client money is increasingly being allocated into managed accounts. 

Prior to COVID-19, financial planners allocated 12 per cent of new client inflows into managed accounts, on average. One year on from the global onset of COVID-19, planners allocated 17 per cent of new client inflows, a 42 per cent increase. The vast majority (88 per cent) said managed accounts helped them save time during periods of market volatility brought on by COVID-19. 

In Australia, managed accounts now represent around $95 billion of funds under management.¹

Looking ahead, financial planners expect to allocate close to a quarter, or 23 per cent of new client inflows into managed accounts by 2024, on average. In 2013, it was just four per cent. When looking at planners already using managed accounts, the number rises significantly. Current managed account users expect to allocate nearly half (49 per cent) of their new client inflows to managed accounts by 2024, on average, up from 41 per cent in 2021 and 27 per cent in 2018.  

Looking across the spectrum of investor age and wealth, financial planners most often consider managed accounts suitable for their accumulator clients between the age of 35 to 49 (37 per cent cite this) and those with $250k to $1m in investable assets (63 per cent). One quarter of managed account users prefer using these structures for lower balance clients (<$100k) while 22 per cent say they are appropriate for millennials (aged under 35) or self-managed super funds (SMSFs), respectively. 

Reflective of broader investor preferences, financial planners are also using managed accounts to implement environmental, social and governance (ESG) themes across their clients’ investments. 

State Street Global Advisors Head of SPDR ETF Asia Pacific Distribution Meaghan Victor said greater awareness of ESG was reflected in take-up of managed accounts. 

“The volatility of the last 12 months has prompted people to think differently about their investments and better align them with their values. In particular, younger investors, are asking their planners how they can better incorporate responsible investing principles into their portfolios,” Ms Victor said.

“While the benefits of ESG investing may be clear, the best path for individual investors to take isn’t as obvious. Some may want to dip a toe into ESG investing; others may want to commit a significant part of their portfolio. 

“With 72 per cent of financial planners preferring to implement responsible investing themes via a managed account, these structures will play an increasingly important role in helping investors action their responsible investing goals.”

Investment Trends Chief Executive Officer Sarah Brennan emphasised the potential for managed accounts to receive greater new inflows in the next three years, given the strong appetite shown by financial planners in this year’s Report. 

“Financial planners tell us that managed accounts are not just for their wealthy clients – they are suitable for wealth accumulators, millennials, and SMSFs, alike. These solutions sit at the heart of democratising investing, and many planners find it easier to demonstrate client best interest obligations with managed accounts,” explained Brennan.

“During recent market volatility, most managed account users acknowledged that these solutions gave them more time, helped them to execute trades more quickly and helped them to reduce operational risk.”

State Street Global Advisors launched its ETF Model Portfolio offering to the Australian market in 2019. It now ranks among the top 20 most used investment managers by planners who currently use managed accounts. 

The 12th edition of the Report was conducted by Investment Trends via an online quantitative survey for 905 Australian financial planners. It took place between December 2020 and February 2021.

Key findings from the Report:  

• During periods of COVID-19 market volatility, the vast majority of financial planners who use managed accounts said these solutions:
• Freed up their time 
• Allowed them to execute transactions more speedily
• Supported a reduction in operational risk 
• 44 per cent of planners currently use managed accounts. These planners expect to allocate nearly half (49 per cent) of their new client inflows to managed accounts by 2024, on average, up from 41 per cent in 2021 and 27 per cent in 2018.  
• Across various client segments, managed accounts users most often consider these solutions to be a whole-of-portfolio solution for accumulators between the age of 35 to 49 (37 per cent cite this) and those with $250k to $1m in investable assets (63 per cent).  
• A quarter of managed account users say these structures can be a whole-of-portfolio solution for lower balance clients (<$100k), while 22 per cent say they are appropriate for millennials (aged under 35) and SMSFs, respectively. 
• 72 per cent of financial planners would prefer to implement responsible investing themes via a managed account. And 60 per cent of planners use managed accounts to implement ESG. More than one fifth of those using managed accounts for ESG investing, do so by including multi-assets with high ESG ratings. Younger planners are more likely to recommend ESG through managed accounts. 
• The top reasons planners value managed accounts include their ability to shift their value proposition to allow more time for discussing client goals and education. 
• Separately Managed Accounts (SMAs) lead the way, with more than 80 per cent of users saying they implement managed accounts via this structure. 
• Nearly 60 per cent of financial planners use models managed exclusively by an external investment manager. 
• More than 45 per cent of planners will consider an investment manager’s   experience/ expertise to demonstrate best interest obligations when recommending managed account models. 
• The majority of models recommended in the last year (66 per cent) were multi asset class. 
• There are three attitudinal segments of planners when it comes to selecting investments for their clients: Outsourcers have minimal involvement, in-sourcers are deeply engaged in the build, and modifiers are somewhere in between. 
• Up to 45 per cent of outsourcers say managed accounts have enabled them to shift their value proposition towards a greater focus on client financial and lifestyle goals. 
• Up to 35 per cent of outsourcers say managed accounts have strengthened their value proposition by distancing it from investment returns.