Investment Trends Managed Accounts Report: 2021 Trends, Usage and What’s Next

  • The shift to managed accounts has accelerated with 70% of planners now using managed accounts or intending to do so. 
  • The extreme market selloffs prompted by COVID-19 demonstrate the wide-ranging benefits of managed accounts. 
  • Planners who use managed accounts believe it is easier to demonstrate client best interest duty through these solutions when compared to managed funds or direct shares.

Partnering with Investment Trends, the twelfth annual SPDR ETFs / Investment Trends 2021 Managed Accounts Report sought to better understand the usage and trends in managed accounts amongst financial planners. The insights from this report will help you take your practice forward, and reveal how you can learn from your peers with regards to best interest obligations and the impact of managed to your value proposition. 

Key Highlights

A survey of 905 financial planners revealed:

  • More than 40% (c. 7,000) of financial planners in Australia use managed accounts, an increase of 22% in the last five years. 
  • Prior to COVID-19, financial planners allocated 12% of new client inflows into managed accounts, on average. One year after the global onset of COVID-19, planners allocated 17% of new client inflows, a 42% increase. 
  • Transparency continues to be a key benefit for these structures, with 55% of current managed account users noting the ability for clients to see their underlying shares is a benefit of the managed account structure. 
  • Separately Managed Accounts (SMAs) lead the way, with more than 80% of users saying they implement managed accounts via this structure. 
  • 63% of users that implement via SMAs on platform recommend models that are managed by professional external managers. 
  • 34% of current users highlight that managed account solutions can be used to provide an effective portfolio core. 
  • 72% of financial planners would prefer to implement responsible investing themes via a managed account.  

Managed Accounts are Here to Stay

The use of managed accounts in Australia has expanded during the last decade, with managed accounts now representing around $95 billion of funds under management.

Approximately 12,000 financial planners, or 70% of the Australian wealth management industry, now use or intend to use managed accounts. This marks an increase of 25% in the last five years. Looking ahead, financial planners expect to allocate 23% of new client inflows into managed accounts by 2024. This figure is even greater for existing managed account users, who expect to allocate nearly half of new client inflows into managed accounts.

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 and those with $250,000 to $1 million in investable assets. Furthermore, a quarter of managed account users believe these structures are suitable for lower balance clients (<$100,000), while 22% say they are appropriate for millennials (aged under 35) or self-managed super funds (SMSFs), respectively.

COVID-19 Demonstrated the Benefits to Clients and Planners 

The wide range of benefits that managed accounts have provided clients and planners throughout the COVID-19 pandemic has further supported the growth and adoption of these structures. During the pandemic, planners that used managed accounts were able to focus on what matters most – speaking to their clients. More than 80% of users noted that managed accounts were good or very good in respect to helping achieve better client outcomes. 

Overall, managed accounts strengthened planners’ value propositions throughout the market volatility brought about by COVID-19. 

Think about the last year, including all the market volatility and business disruption. How do you rate the impact of using managed accounts on your business?

However, planners that use an external investment manager to offer managed accounts to their clients realised this benefit marginally more compared to those that do not. This phenomenon was experienced across the globe, with 92% of model users in the United States believing outsourcing investment management improved their practice during COVID-19 volatility.2  Evidently, the extreme sell-offs in March 2020 and the ensuing volatility prompted more planners to park money in model portfolios via managed accounts.

Meeting Client Best Interest Through Managed Accounts

Clients’ best interest and fiduciary obligations are a primary consideration when it comes to providing financial advice. The report showed managed accounts are supporting client best interest duty, with the majority of planners noting it is easier to demonstrate client best interest duty through a managed account when compared to managed funds or direct shares. 

More than one third of current users believe a key benefit of managed accounts is that these structures are an ideal solution to meet client best interest obligations. In fact, almost all SMA users (93%) rated the ease of demonstrating client best interest obligations through SMAs as ‘good’ or ‘very good’. 

Fees, experience of the portfolio manager and third-party research ratings are the main considerations used to ensure the managed account meets client best interest. 

How do you ensure the managed account models you recommend meet client best interest?

Interestingly, the considerations have different priorities depending on the amount of time a planner has used managed accounts. Those that have used managed accounts for longer periods (i.e. greater than two years) more often consider the experience of the investment manager as a factor for meeting best interest obligations. Planners that have used managed accounts for shorter periods of time (i.e. less than 12 months) more often compare fees of products to ensure the managed account recommended meets best interest obligations. 

Enhanced Value Proposition for Financial Planners

Planners value managed accounts for its ability to shift their value proposition –  to allow more time for discussing client goals and education.  36% of users highlighted managed accounts shifted their value proposition to outsourced portfolio construction, as this enables planners to benefit from repeatable and reliable investment processes. It is therefore no surprise that those who use managed accounts for a greater portion of their clients are more likely to observe positive changes to their value proposition.

How has your client value proposition changes as a result of adopting managed accounts in your business?

But what do clients think about planners using managed accounts? Our proprietary global research, Model Portfolio Solutions and the Client Experience, conducted by the SPDR Global Practice Management team asked if investors recognised the benefits of model portfolios. The findings were clear –  investors also appreciate model portfolios implemented via a managed account – with 88% of clients saying when their planners used model portfolios they could focus on what matters most. 

What Does the Future Hold?

We expect managed accounts will continue to evolve to meet planners’ and investors’ needs. One such evolution will be on the types of managed accounts coming to market. We expect to see more thematic managed accounts from those focusing on environmental, social and governance issues to sector investing.  Furthermore, we believe managed accounts are on track to be a dominant investment structure within financial planners’ practices, both locally and abroad.