The benefits to financial planners from using a managed account to deliver an investment solution fall under the three broad headings, a workshop and webinar produced by the Institute of Managed Account Professionals (IMAP) has heard.
Dan Powell, head of platform sales and relationship management for managed account provider OneVue told the workshop that a properly implemented MDA solution provides benefits for strategy implementation, investment governance and advice practice efficiency and valuation.
“It’s around prompt implementation of portfolio changes,” Powell (on the right in the picture) said.
“It manages the risk that within a practice an adviser has made a recommendation and a client has accepted it, and the practice then has an obligation to make sure it’s implemented in a timely manner.
“If it gets lost somewhere in the practice [or] if the client doesn’t respond to the advice being recommended, because they’re not contactable, what does that mean about the future relationship with the client [if] they feel they’ve missed an opportunity?”
Powell said a properly implemented MDA reduces the number of records of advice (RoAs) that need to be produced to implement investment recommendations.
“It fulfils a regulatory requirement,” Powell said.
“In a traditional portfolio, [for] every change there’s this new ‘lens’ that the adviser has to take on: ‘Is this in my client’s best interest?’ Even to document it or think about it takes that process, versus if a client is in a managed account [where] those decisions are made by an investment committee and the adviser is not participating in that and therefore doesn’t have to sit with the lens of ‘is it in my client’s best interest’ if that investment committee decides to sell one stock and buy another, or re-weight.”
Efficiency and profitability
Powell says the practice efficiency and profitability may also be improved – issues covered at an earlier IMAP workshop by a director of T&C Consulting, Tony McDonald.
Powell said an MDS offer also helps an advice business differentiate itself from other businesses.
“It’s a very crowded market, the advice market,” he said. “Having a very clear value proposition about a portfolio, how it’s constructed, how it’s managed and that journey with the client, I think is a distinction in the market.
“And if you look at the websites of some of the advisers that run with managed accounts, they put a lot of emphasis around that philosophy and that process, and they use that as a way to really differentiate themselves in the marketplace.”
Powell said making the investment aspects of an advice business simpler and more efficient means advisers can spend more time on the things that clients tend to value, namely, face-to-face meetings and developing appropriate strategies.
“It comes down to the value proposition, which is a quite important thing,” he said.
He said that if there is a “clear, articulated and documented business model that you can demonstrate to advisers coming into your practice, it also is a clear and articulated business model that you can take to a potential acquirer of your business”.
The benefits for clients from an MDA fall under three broad headings: consistency, communication and ease, Powell said.
“There’s enormous comfort in knowing there’s a consistent approach to the investment process,” he said.
“There’s an investment committee, there’s a mandate, it’s monitored and it’s implemented, and there’s a process around that…versus maybe the traditional platforms where the adviser goes on holidays or gets hit by the proverbial bus: who’s looking after the portfolio; and where’s the portfolio at?
“If the adviser is away, someone in the office or the practice will probably have a god idea of those models and can pick up with the client queries from that point, as opposed to every portfolio being handcrafted – how do the support staff get across all that detail?”
Focus and professionalism
Powell said the benefits from a communication perspective include a greater focus and professionalism, “as opposed to having, again, to hand-tailor every piece of communication”.
“There’s also easier facilitation. They can still retain direct investment and client ownership in a managed account; they still have the sense of control,” he said.
“And it will suit those time-poor clients. That’s not to do with account balances; that’s to do with their mindset. You can find some very high-net-worth clients who are time poor – it probably goes hand-in-hand with that sort of character – and they’re probably not too engaged, so why do you want to create a structure within your advice practice where you’re having to punch out advice documents on a regular basis for a client who will not read or respond to those documents?”
Powell said MDAs also appeal to certain segments of the self-managed superannuation fund (SMSF) market. “It fits what they want,” he said.
The chairman of IMAP and national manger of platform strategy at IOOF, Toby Potter (on the left in the picture), said that in order to give advice a financial planner has to be properly authorised to do so, and must follow a suitable advice process.
Potter said that in the IOOF group the advice process is essentially broken down into four steps: “This type of asset would be appropriate for you; a managed discretionary account, giving discretion, would be appropriate for you; this particular one would be appropriate for you; and this particular investment program within this particular MDA service would be appropriate for you”.
“We think of the advice as having to cover those four components,” Potter said.
Professional Planner was media parter to the IMAP workshop and webinar.
Note: The advertised presenter of this workshop, founder and director of The Fold Legal, Claire Wivell Plater, was unable to attend.
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