Lonsec has undertaken new research into Australia’s separately managed account (SMA) platforms in recognition of the increasingly important role SMAs play in offering investors heightened transparency and greater control over their investments.
In response to strong interest from its clients, Lonsec conducted what it believes to be the first comprehensive research into SMA platforms in Australia.
SMAs are normally non-discretionary in nature, in that the operator of the platform executes changes to model portfolios, but does not make the investment decision. By contrast, Individual Managed Accounts (IMAs) are normally run on a discretionary basis. Providers must be licenced as Managed Discretionary Account (MDA) operators.
Lonsec assigned ‘Approved’ ratings to each of the five SMA platforms it reviewed. The five SMA operators collectively account for over $2 billion in assets under management and over half of the total SMA market (defined as funds tracking model portfolios).
According to Michael Elsworth, Lonsec’s General Manager – Specialised Research, the SMA market falls into two broad categories: the large banks surveyed tend to view their SMA platforms as adjuncts to their wrap administration platforms, generally offering a narrower range of model portfolios. Meanwhile, specialist financial services groups, with strong orientation towards technology, are competing with the established players, in part by offering a more extensive range of model portfolios.
Both larger banks and specialist financial services companies committed to growing their SMA businesses over the next two years.
“In essence, usage of SMAs will likely grow thanks to both greater demand from advisory groups and other investors and to new and competitive solutions that are delivered by banks and other companies that are strategically committed to SMAs,” Mr Elsworth said.
Lonsec took a two-pronged approach to the research, reviewing investment managers and their model portfolios while also looking at the administrative services provided by the platforms and the underlying technology.
In assessing the investment managers, Lonsec looked at the communication between the managers and the operators of the SMA platforms. Lonsec also considered the suitability of the model portfolios for use in SMAs.
A key finding was that the SMA operators are not all alike in the ways in which they communicate with model portfolio managers: nor are they alike in the ways in which they communicate with advisers and investors.
“This new research defines the language and key concepts underlying SMAs in Australia and we expect the research to grow and become a sector in its own right over coming years,” Mr Elsworth concluded.
