There appear to be two main competing views about the use of managed accounts. One perspective is that the incumbent platform providers have been slow to add managed account functionality which has allowed niche providers using modern technology to forge closer relationships with advisers, particularly those who deal with high net worth clients and self-managed superannuation funds.
As a result, the hold that traditional platforms have had on the administration market is changing.
Another view is that niche providers compete mainly on price and their business models will be unsustainable once the platforms eventually release their managed account functionality. This functionality may or may not match the functionality niche providers currently deliver.
In reality, the debate is not about incumbent providers versus niche providers. For aligned advisers, and planners who deal with the mass affluent, the use of institutional master trusts and wraps makes sense.
However, what’s important is that there are different investment and administration options available to advisory firms. Competition is the key to a healthy, thriving and innovative industry, and there will always be room for both small and large players.
Increasingly, boutique advisory firms are electing to undertake a new approach to administration. Some have sought to obtain their own MDA authorisation under their AFSL to heighten scalability and efficiency of portfolio management. Others are choosing to leverage the technology and service of a niche provider to implement a turnkey solution.
This has come about because incumbent platform providers have either failed, or been too slow, to properly deliver the functionality required by SMSF investors, high net worth individuals and the advisory firms who service them. On top of that, wrap platforms are considered expensive by many advisers given the functionality they offer.
Generally, platform providers charge around 30-35 basis points to administer a $1 million portfolio. That’s comparable to most managed account solutions. However, managed accounts allow advisers to build tailored portfolios according to a client’s individual circumstances, tax position and objectives. They offer transparency and beneficial direct ownership with the flexibility to hold a wide selection of assets.
Furthermore, most MDA providers don’t introduce steeper pricing for smaller accounts because their average balances are higher and don’t warrant a tiered pricing structure.
With demand for direct investments accelerating at an unprecedented rate, many advisory firms need an administration solution with enhanced portfolio management functionality and the discretion to manage client portfolios directly. Managed accounts can now be seen as a business solution – not just a way to invest and administer client portfolios.
The growing acceptance of managed accounts should be seen as a positive development.
While there’s likely to be some convergence between the upgraded wrap solutions now offering SMA functionality and the specialist SMA platforms, whether platform providers will allow advisory firms to manage their own discretionary portfolios with the platform taking responsibility for the advisory firm’s mandates is another topical and uncertain issue.
Sophisticated managed account providers already facilitate this approach and will continue to have a compelling value proposition, notwithstanding whether their pricing is sharper than incumbent platform providers.
Perhaps more important questions for advisers and licensees to consider are whether their platform provider is prepared to offer a solution that meets their business needs. Furthermore, are incumbent platforms able to offer a solution to advisers that will effectively compete with their banking and funds management businesses?
After all, managed accounts are not just another product or piece of software, they are a business solution.