Enhancing decision-making with research tools for evaluating managed accounts
- Advisers have indicated that greater clarity on available tools for evaluating managed accounts would support their ability to recommend these solutions.
- This article outlines the tools and frameworks advisers can use to maximize the benefits of model portfolios delivered through managed accounts.
Model Portfolios implemented through managed accounts have become a cornerstone of modern wealth management, delivering efficiencies and enhanced compliance for advisers and clients. While these solutions can enhance client engagement and portfolio outcomes, the due diligence process remains a critical, and often complex, for successful integration.
Challenges associated with due diligence
Despite the operational benefits of managed accounts, advisers encounter several hurdles during the due diligence process:
Resource intensity
Thorough due diligence is time-consuming and requires specialized expertise. Many practices have narrowed their Approved Product Lists (APLs) to reduce operational load, with recommended models dropping from an average of 18.2 to 12.1 in recent years. 1
Data and transparency issues
Some providers do not supply comprehensive performance benchmarks or detailed methodology disclosures, making it difficult for advisers to meet fiduciary standards for prudence.
Regulatory considerations
With regulators such as ASIC reviewing governance frameworks and conflicts of interest, advisers must ensure compliance with evolving standards, adding complexity to the due diligence process.
Tools used to assess managed accounts1
Advisers typically rely on a combination of internal and external resources to evaluate managed account models, using on average five key tools:
- External research houses: Independent ratings and analysis remain the top source of information.
- Comparison platforms: Tools that benchmark fees, performance, and risk metrics across providers.
- Performance analysis: Historical returns, volatility, and risk-adjusted metrics.
- Fee comparison modules: Evaluating cost structures against industry norms.
- APL reviews: Regular audits of approved models to ensure alignment with client best interests.
Due diligence considerations
When undertaking due diligence consider the following key areas:
1. Investment methodology
Review how providers construct portfolios, including assumptions for asset allocation and objectives. Compare these to relevant benchmarks to ensure consistency and alignment.
2. Experience
Assess the providers’ capabilities and tenure. While model portfolios implemented via managed account are now mainstream, not all providers have a decade or more of experience. Understanding these nuances can significantly influence outcomes.
3. Resources
Evaluate the robustness of the provider’s infrastructure. Does the firm have adequate staff and resources across risk management, legal and compliance? Are there dedicated teams to coordinate these functions and deliver a seamless solution?
4. Operational and risk controls
Examine governance structures, rebalancing protocols, and risk management practices to confirm resilience and consistency.
5. Communications
Consider how effectively the provider communicates their strategy and performance updates. Look for a proven track record of timely, clear, and audience-relevant communications.
Why it matters
Model portfolios delivered through managed accounts offer significant advantages, but their success depends on rigorous due diligence. By applying a structured evaluation framework and leveraging a variety of analytical tools, advisers can maximize these benefits.
For deeper insights into the tools and research available to assess solutions, connect with a State Street ETF Model Portfolio specialist.