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The Next Iteration: Off the Shelf and Custom Managed Accounts

As model portfolios evolve, advisers have more choice than ever before. Global trends reveal assets move between off the shelf and custom managed accounts. The SPDR ETFs / Investment Trends 2023 Managed Accounts Report further highlighted this trend in Australia.

3.40 min read
ETF Model Portfolio Strategist

Model portfolios are a popular investment strategy that involve investing in a diversified suite of asset classes, using building blocks such as ETFs or managed funds. Model portfolios implemented via managed accounts continue to gain popularity both locally and abroad. In Australia, managed accounts reached $144.5 billion in assets, reflecting close to 25% of platform assets.1 In the United States (US) asset allocation models are approximately US$2 Trillion2, suggesting Australia has far more growth on the horizon. As assets continue to grow advisers have more options for their clients, this article explores the reasons advisers may choose off the shelf or custom managed accounts.

Custom Managed Accounts

Custom portfolios are created by the model provider at the request of a particular adviser on behalf of their clients need. Custom models are differentiated from customising, because customising involves changes to an individual investors model portfolio, where advisers tailor an investment strategy to the specific needs of an investor. Customising is afforded to advisers by developments in technology. For example customising may involve excluding a particular asset.

Manager preference, underlying vehicle requirements, strategic asset allocation (SAA) changes and open architecture are some of the key reasons advisers in the US are requesting custom models. For example, risk models can be built to meet a greater growth defensive split as opposed to the standard 60/40 or 65/35. In the US the minimum investment range amount of US$100 - $250 million is required for custom models. Custom models reflect 9% of the US model market. These are mainly offered by asset managers, rather than third party strategists, as asset managers are well resourced to manage a number of strategies2. This is unlike Australia where investment committees are primarily relied on to create custom model portfolios and managed accounts.

Off the Shelf Managed Accounts

Off the shelf managed accounts can be described as investments that are easily accessible on public platform menus. Among current managed account advisers who use separately managed accounts (SMAs) on platform, 63% use off the shelf models and just under half of advisers will only use off the shelf models.4 SMAs have seen significant growth with these structures holding approximately $81 billion compared to five years ago ($14 billion).1 The growth of these structures can be attributed to the benefits of manage accounts and the number of investment options available.

There is an abundance of choice with approximately 1,100 off the shelf managed accounts in Australia. Multi manager or diversified models reflect two thirds of the options availble.3 Multi-asset class models are the most used, they make up three quarters of models recommended by advisers. Given the ease of access and range of investment options those new to managed accounts tend to use off the shelf models, specifically, 73% of advisers who use SMAs for a year or less, will use off the shelf models. Further, independent advisers are more likely (71%) to use off the shelf models. This is due to independent advisers not being limited to the investment options prescribed on the approved product list.

Whether an adviser selects to build custom or utilises off the shelf model portfolios, they stand to gain the efficiencies offered by managed accounts. Speak with the State Street SPDR ETFs Team to help you determine whether custom or off the shelf models make the most sense for your business.

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