The evolution of the financial advice industry is seeing managed accounts emerge as the preferred investment and administration vehicle for many investors, SMSFs and advisers. David Heather explains.

Managed accounts are not a recent development in Australia. They have existed in various forms since the 1990s. Some industry reports claim that managed accounts are only a speck on the financial services radar and they pose no threat to the dominant institutionally-owned platforms. However, heightened regulation and the evolving needs of investors are driving a growing number of advisory firms to adopt managed accounts.

In short, a managed account is a portfolio service where a client gives an advisory firm, professional investment manager or stockbroker the authority and discretion to make investment decisions, within agreed parameters, on their behalf.

Common misconception

A common misconception is that managed accounts only support ASX-listed stocks, but sophisticated managed account providers allow investors to hold a wide range of investments including managed funds, international securities, unlisted bonds, term deposits and other cash vehicles from any issuer.

A managed account service is a truly open architecture solution. Furthermore, once investment parameters have been set and agreed to between the client and adviser, there’s no requirement to document portfolio changes with a record of advice.

In the hands of an inexperienced adviser, this power could have disastrous consequences, which is why managed accounts are heavily regulated by the Australian Securities and Investments Commission (ASIC).

However, skillful advisers with formal processes in place are able to add real value by tailoring investment portfolios to meet their clients’ individual needs. They’re able to act quickly to take advantage of opportunities in the market.

How to establish a managed account

Advisory firms that are considering managed accounts must first decide on the services and functions they want to keep in-house or outsource.

These include:

• Legal structure and compliance obligations – A licensee can become a Responsible Entity or more likely a MDA Operator. This will require increased PI cover; the development and maintenance of a legal framework; and significant capital adequacy requirements to be met.  Alternatively, this can be outsourced to a specialist managed account provider.
• Administration – The cost of keeping this function inhouse can be expensive not to mention risky.
• Investment Management – Not all advisers or advisory firms have the time, skill or desire to pick quality stocks and investments. This function can also be outsourced to a professional investment manager.

Once a decision has been made to outsource some functions, there are a number of factors to consider when selecting a suitable managed account provider.

Below are five key questions to consider.

• Are you looking for a product provider or solution provider? Advisers who want to continue performing some functions inhouse should partner with a provider that enables them to create a bespoke solution that will deliver the outcome they want to achieve.
• Who will have legal ownership of the assets? Asset can be held directly in the client’s name or through a custodian.
• Does the investment manager have adequate skill and experience? Investment management is a major determinant of whether clients will meet their financial and lifestyle goals and objectives.
• What underlying technology supports the delivery of the managed account service? It is essential that a managed account service delivers greater efficiencies for advisers and a lower cost to the client, including SMSFs.

Not all managed account providers are the same which is why it’s crucial to understand your requirements and take the time to review all providers across the market.

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David Heather is the chief executive of, which has successfully implemented more than 25 managed account solutions for advisory firms.