A financial planning practice based in the central business district of an Australian capital city shows that introducing a managed account investment solution can improve practice efficiency and profitability, while simultaneously delivering a better investment solution to clients.
The practice reduced client investment costs by 40 basis points, improved practice efficiency by 44 per cent, and lifted revenue by 50 per cent. The practice will feature as a case study in sessions to be held in Sydney and Melbourne next month, hosted by the independent licensee Paragem, to illustrate how to successfully implement a managed account investment solution.
A director of Paragem, Charlie Haynes, says the principals of the practice realised that after the global financial crisis the traditional way of implementing portfolio construction solutions had some shortcomings.
“Each year they would return from the PortfolioConstruction Forum conference with clear themes in mind and agree appropriate core-satellite models of managed funds and direct shares, implemented through a traditional wrap platform,” Haynes says.
But after the GFC “it became apparent that a long-only, set-and-hold approach was no longer appropriate and portfolio construction started to move to more of a risk-on/risk-off mentality”, Haynes says.
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Reducing back office congestion
He says that even though clients liked and understood the approach, they knew nothing of the back-office inefficiencies and congestion the approach created. Practice growth slowed to a crawl as it struggled with capacity constraints, and it was forced to put on additional back-office staff to cope.
The more time and effort the investment solution consumed, the more the practice principals wondered whether they were really financial planners or had become portfolio managers.
Haynes says that following an introduction to the concept of managed accounts, the practice principals decided to act. As a result, the cost of managing a $1 million balanced pension account fell from 126 basis points to less than 90 basis points, while the ratio of back-office staff to advisers fell from one-to-three to one-to-1.17.
And the practice has lifted annual revenue from $800,000 to $1.2 million in the space of just a couple of years.
Haynes says refocusing on strategic advice, partially outsourcing investment management and producing more engaging communication for clients has created a clearer value proposition, and a point of difference that clients appreciate. He says the practice has experienced a flood of referrals over the past six months.
He says the practice principals also realised by reducing investment costs they could revisit their advice fee structure, and begin to charge appropriately for the value being delivered.
More importantly, he says, the principles have taken their business to a new level, developing a sustainable, valuable business, with high perceived value-add and a low cost base, and are once again able to take pride in what they do.
The Paragem adviser information sessions, Managed accounts – the evidence is compelling, take place in Sydney on September 6 and Melbourne on September 7, running from 7.45am to 10.00am
