2022 is the first year where more than half of financial planners in Australia use managed accounts. Outsourcers account for just under a quarter of current managed account users. Partnering with Investment Trends, the SPDR ETFs / Investment Trends 2022 Managed Accounts Report. sought to better understand outsourcers’ usage and experience when it comes to managed accounts.
The use of managed accounts in Australia continues to gain traction, with managed accounts now representing around $135 billion of funds under management.1
One in two financial adviser utilise managed accounts, up from just 16 per cent a decade ago. A further 18 per cent may do so in the future according to the SPDR ETFs / Investment Trends 2022 Managed Accounts Report. Among the top reasons for this strong uptake is that these structures support a wide spectrum of advisers. Model portfolio users can be categorised as:
Outsourcers account for just under a quarter of current managed account users. This article focuses on this category of model portfolio users.
Of the current managed account users in Australia, outsourcers make up 27% of users that sit within the aligned financial adviser channel, 26% of users that own their AFSL and 20% of users that are from the majority independent. Whereas in previous years outsourcers predominantly sat within the majority independent channel. This may not come as a surprise as advisers pursue a more-holistic, total-financial-health approach and by outsourcing the investment selection advisers can now shift their focus toward meeting clients goals.
Adviser involvement in investment selection. By Channel Among current managed account advisers
Further, both locally and abroad, outsourcers tend to be from the younger adviser demographic (aged 18-39). We believe this is because outsourcers are provided the time to focus on growing their books of business without the need to hire specialised investment staff. This is particularly attractive for the younger adviser cohort, helping to increase thin margins early in their career. As such, we expect this category of model portfolio users to grow going forward.
When advisers where asked how they have benefited from using managed accounts, outsourcers are most likely to cite a reduction in the cost of providing advice and a lower compliance burden . In fact, 64% of advisers that outsource investment selection do so because it reduces risk for their practice. Moreover, more than half outsource because it provides access to institutional grade investment management.
Our proprietary global research, Model Portfolio Solutions and the Client, conducted by the SPDR Global Practice Management team, further investigated how outsourcing portfolio management affects the client experience. Again, clients with assets in model portfolios strongly support their use, reporting positive impacts. It seems that these investors see the big picture: using model portfolios allows advisers to dedicate more time and energy to client relationships, resulting in a better understanding of each client’s specific circumstances.
The time savings of managed accounts has continued to increase as the solutions mature and proficiency levels rise.
Managed accounts advisers say they save 15.7 hours on average on a typical work week (up from 13.0 hours in 2020).
Average time saved (hours per week) on portfolio management related tasks
The time saving increases as the adviser elects to outsource the investment management. Specifically, outsourcers saved 19.1 hours a week, that’s over 2 days a week (assuming the work day is 8 hours). As advisers seek to increase the time spent with their clients to deepen relationships, we expect the number of advisers utilising outsourced solutions to increase.
Managed accounts are valued for their ability to shift an advisers value proposition. While all managed account users have noted positive impact to their value proposition, outsourcers more often realise this impact. Outsourcers more often cite the shift to value proposition with greater focus on client financial and lifestyle goals. Specifically, 35% of outsourcers say managed accounts have strengthened their value proposition by distancing it from investment returns.
How has your client value proposition changed as a result of adopting managed accounts?
State Street ETF Model Portfolios presents the opportunity to outsource part or all of asset allocation responsibilities. The key attributes for these model portfolios are outlined below.
The portfolios offer:
1Source: Institute of Managed Account Professionals (IMAP) and Milliman, as at 30 June 2022.
Model portfolio: is a collection of assets owned by the underlying investor and continually managed by professional investment managers. Model portfolios employ a diversified investment approach to target a particular balance of return and risk or portfolio objective
Managed Account: Typically, Australian investors access model portfolios via managed accounts. A managed accounts is the general term that refers to the type of product or service where the underlying securities can be attributed to the investor and allow for continual portfolio management i.e. rebalances/asset allocation changes.
The SPDR ETFs / Investment Trends 2022 Managed Accounts Report was commissioned by Investment Trends. The quantitative online survey was carried out between 6 December 2021 and 30 January 2022. The sample after data cleaning and validation was 669 financial advisers.
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