The managed accounts industry continues to grow and to mature. But the sector’s funds-under-management (FUM) only tells part of the story. Its impact may be considerably wider and carry a lot more significance than just on how financial planners invest clients’ money.
The Institute of Managed Account Professionals (IMAP) founder and chair, Toby Potter, told the institute’s inaugural portfolio management conference in Sydney on Monday that the last formal count put the industry’s size at $40 billion. He said another count is underway and he expects the figure to come out at about $50 billion. A managing director of Morgan Stanley, Daniel Toohey, told the conference his firm expected managed accounts to reach $60 billion by 2020 and those estimates may need to be revised upwards.
Clearly, some licensees and advisers are taking up managed accounts with gusto. Potter said that there are some 40 or so “credible tech offers” that advisers can choose from. It’s an increasingly competitive, and confusing, field. While there are some obvious investment-related benefits in using managed accounts, in terms of administration, implementation efficiency and cost savings, the ultimate impact may be much broader than that.
In the initial phase of take-up, managed accounts were often seen – and used – by advisers as a way to replace the volume bonuses that were outlawed by the Future of Financial Advice (FoFA) changes, and to retain more margin for themselves. But the view is changing.
Licensees and advice businesses that have a big-picture strategic concept of why they want to streamline the investment process tend to be most successful at implementation, the conference was told, whereas firms that just focus on how much they’re going to save tend not to do as well.
The widespread adoption of managed accounts may accelerate a move away from fees based on FUM to fees based on the value of services. Perhaps ironically, a way to enable the more efficient management of clients’ assets may be the thing that leads advisers to drop the pretence of being investment experts and focus on the things clients actually value.
The reasoning is relatively straightforward. A managed account allows an investment solution to be implemented efficiently and relatively cheaply for a large number of clients. If that’s not an actual definition of commoditisation, then it’s pretty close. It makes less and less sense to base revenue on part of a business that is being commoditised and which is already under threat from elsewhere, such as robo-enabled services.
That view was reinforced in research by Macquarie, outlined by head of client strategy Sherise Mercer, which found the most valued aspects of a relationship between a financial planner and a client are mostly based on personalisation of services.
The key word is services. Successful firms take the savings from implementing managed accounts and (assuming cutting those costs isn’t actually the difference between life and death for the firm) direct the newly freed-up resources to delivering the services clients value most.
Those services include managing a portfolio for risk-return outcomes that are important to the client; providing the client with the right level of information about their progress; connecting the client to other service providers, as needed; proactively managing the client’s affairs; and helping to improve the client’s financial knowledge.
The adviser’s investment expertise, perceived or otherwise, rates nowhere on Macquarie’s list of valued attributes and fees aren’t a factor in client satisfaction either. That’s why the really smart firms charge clients for the value of the services they provide, not for the value of the client’s assets.
This approach aligns revenue to the value added and has the added benefit that services remain valuable irrespective of what happens from month to month in investment markets and the consequent impact on asset values.
