on November 09, 2016 Trading & Investing

Managed Accounts: a marathon, not a sprint

Form title

Before there were managed accounts there were platforms – largely master trusts and wraps. The earliest, Asgard, has been around since 1985, but it wasn’t until the 1990s that platforms really took off.

In fact in the early 1990s, at a time when you could count the number of platforms on a few fingers, a colleague and I were laughed out of a boardroom when presenting a business case for the launch of a competitor platform. There was, we were told, limited opportunity (the business subsequently badged BT Wrap – a missed rather than limited opportunity!).

Advances in technology have not only enabled platforms to evolve, it also spawned a new solution – the managed account.

Like the early days of platforms, it’s been a slow burn; according to researcher Plan for Life, platforms held $662.7 billion assets under management at 31 March 2016. Research by Morgan Stanley suggests that managed accounts will reach $60 billion by 2020.

It’s been a slow start…

It’s not like Australians are late adopters of technology, however there have been several forces slowing down the take up of managed accounts.

Firstly, the dominance of platforms operated by vertically integrated institutions. Aligned and non-aligned advisers have built business models around using these platforms. Once entrenched, it’s hard to change. The institutions reap considerable revenue from platforms, so they’re generally happy to maintain the status quo.

Secondly, it can be a bit confusing. All those acronyms – SMA, UMA, IMA, MDA – what’s what, how does each work and what’s best for clients?   

Finally – and importantly – there hasn’t been a total solution presented to advisers. Many managed account solutions only deal with part of the equation.

According to Shannon Bernasconi, Director Strategy & Development and Co-Founder of new entrant MA Operator, advisers find themselves moving between several tools for portfolio construction, execution, rebalancing portfolios, compliance, reporting and administration. Not ideal.

…but the future is bright

Despite the slow growth of managed accounts, it’s clear they’re moving toward the mainstream. Some in the industry suggest the recent inclusion of managed accounts by BT Panorama signals a tipping point toward managed accounts.

Consider also, a number of superannuation funds have added managed accounts to their offering, largely to retain members and benefit from the huge growth in the SMSF sector, expected to exceed $2 trillion by 2033, according to a Deloitte report[1]. The managed accounts offered by platforms and super funds are generally SMAs – or separately managed accounts. An SMA is a vehicle to invest in equities and other listed securities, while benefiting from professional investment management.

A number of fund managers provide SMA portfolios, often pared back versions of their unlisted offerings; like managed funds, SMAs are sold via a PDS and operate under the managed investment scheme regime. Many SMA platforms provide some flexibility in investment selection, as well as tax modelling and flexibility in the selection of parcels of shares to sell to manage an investor’s tax position.

On the downside, some managed account providers rely on custodians, meaning that the legal ownership of investments is held by the custodian rather than the investor. This makes it much harder for investors to move their assets and adds counterparty risk.

[1] Dynamics of the Australian Superannuation System: the next 20 years.

The next generation

The following managed account providers have been gaining significant traction in the market. As you can see, there are variations in the types of accounts offered, and within those, the investment product. Some will provide a choice of broker, while others utilise a broker panel or provide a trading platform for adviser use. It’s an exciting and evolving sector.

Managed Accounts Platforms Comparison Australia_top 5_1.png

OpenMarkets is on the broker panel for MA Operator, one of the sector’s latest entrants. It’s targeted to independent financial advisers who don’t want to be product driven. The platform is an end-to-end solution that enables advisers to quickly set up, execute and monitor direct portfolios.

Using MA Operator, advisers have the flexibility to implement any model portfolio or asset allocation, and can tailor each investor portfolio to their particular preferences.

Shannon Bernasconi describes the rationale behind the development of MA Operator – “We wanted to empower advisers and lower costs for investors. Investors can get good advice, have legal and beneficial ownership of their assets, all at a reasonable price.”

“We saw a huge demand for a solution that removed inefficiencies; advisers don’t want to have to use several systems or apply manual effort to create ROAs, execute transactions, rebalance portfolios, or manage compliance and client reporting.”

MA Operator automates the workflow; an adviser has the client discussion, agrees the SOA and from there, the process can be completed within MA Operator. It was developed with advisers, for advisers and heralds the next generation of managed account offerings.

Watch this space!

Tracey Franks (OM blogger)

Tracey Franks is an experienced freelance writer, communicator and marketer. She has worked in financial services for over 20 years, for businesses spanning stockbroking, funds management, research and consulting, as well as financial planning. When not writing about finance-related topics, Tracey is working on her first novel.