A new client base of ‘mum and dad’ investors that has developed over the last three years is accessing managed accounts, Colonial First State (CFS) reports.
The Commonwealth Bank subsidiary has a $7 billion share of the $57 billion managed accounts market, which grew 19 per cent in the six months to December 31 last year.
A census by the industry’s peak professional body, the Institute of Managed Account Professionals (IMAP) and Milliman, attributes an even stronger annual growth rate of 45 per cent, worth almost $18 billion a year, to a “buoyant investment market” and growth in the ASX 200.
But CFS head of retail sales Laird Abernethy says growth in managed accounts, which give Australians the ability to hold investments in a legal structure that allows shares to be bought and sold without Records of Advice (RoAs), is also being fuelled by availability on more platforms, broadening their reach through financial advisers and licensees.
“For managed accounts, it’s been a 20-year growth story, [then] overnight success,” Abernethy says. “They’re not a new phenomenon but had been traditionally limited to high-net-worth individuals and available for more niche industry providers.
“In the last three years [there has been] significant growth; we put that down to technological advancements, we’re now seeing managed accounts being offered to a much larger client base through advisers and licensees.”
Strong investment proposition
The industry is acutely aware of the need to have a strong investment proposition. Abernethy says the “stars have aligned” for advisers and licensees to drive efficient practices in “a risk-aware way”, through managed accounts.
“They have eliminated the need for Records of Advice (RoA)…They allow the adviser to make portfolio changes without any RoA documentation. For clients, the best ideas are being implemented instantaneously across the book.
Managed accounts differ from managed funds in that they can include direct equities, managed funds or both, and a licensee can tailor them.
“For licensees, it improves the efficiency of their business,” Abernethy says. “It centralises the management of client portfolios. Every adviser using that MA will implement the same client portfolio, which also reduces the risk associated today with active trading by advisers in the group.
“It outsources the decisions to the nominated professional investment manager and allows advisers to spend time on what they do best, which is strategic client advice.”
Clients also have the benefit of direct ownership of securities, greater transparency of underlying shares in their portfolio and an individual tax outcome. In contrast, managed funds can have imbedded tax legacies and opaque information on underlying shares.
Variety and confusion
Despite their popularity, advisers are still confused by the sector and its wide variety of products, including separately managed accounts (SMAs), individually managed accounts (IMAs), and managed discretionary accounts (MDAs).
Part of Abernethy’s remit is educating advisers and licensees on the benefits.
“There’s still a lot of confusion in the mass retail market around managed accounts,” he says. “It can mean many different things.
“More understanding needs to happen. I think we’re just at the start of the managed account phenomenon and more people will understand what solutions are available to them and the benefits they will bring.”
Abernethy’s CFS colleague Kelly Power, general manager, who helps design products, says education is vital to the sector’s success.
“I’d be surprised if many clients knew what a managed account was,” Power says. “I think because that term is used so broadly, education is so important in this industry.”
It takes some time and investment for licensees and financial advisers to adjust their businesses to cater for managed accounts.
“Again, I feel like that’s where companies like Colonial First State have been strong because we’re helping advisers make that transition, Power says. “We’re helping to work out what is right for their business, how you transition to it, how to put an investment committee in place, how to help you on your journey.”
Strong growth expected
Power says future sector growth will be stronger than Morgan Stanley’s recent prediction – $60 billion in funds under management by 2020 – partly because of the vehicle’s appeal during market downturns.
“I think volatility in markets makes advisers lock this in,” she explains. “If there are some corrections or changes in markets, it allows for a quick response.”
She says managed accounts’ continued introduction onto platforms such as CFS’ FirstChoice and FirstWrap, and those of its competitors BT Panorama and Macquarie Wrap, will resonate with a broad market. “Advisers can use these investment products to run a more efficient practice; they can service more Australians and provide more advice for Australians,” she says.
FirstWrap, launched late last year, offers direct equities to advisers in SMAs, free of brokerage, combined with the ability to set client preferences at the account level.
Another benefit is for licensees to cater to clients’ environmental, social and governance bias, by tailoring solutions to their customer base, Power says.
“That’s absolutely something that’s being preferred in the FirstWrap product,” she explains. “You can specify that you don’t want to own certain stocks or that as a director of a company you can’t hold certain stocks and you can exclude those.”
Nikko Asset Management Australia managing director Sam Hallinan, whose company manages almost $9 billion in funds for Australian retail and institutional investors, has placed its Australian Share Concentrated Fund on CFS’ FirstChoice and FirstWrap platforms.
Hallinan says managed accounts are particularly popular with Australian investors and are a good way to have direct ownership of shares while accessing the best advice.
The Australian Share Concentrated Fund focuses on 15 to 25 stocks; it is designed to provide a total return with a bias towards income. Its weightings vary considerably from the S&P/ASX 200 Index, and it is managed by its 11-member Australian equities team.
“Managed accounts are available globally and growing in popularity, particularly in Australia, so our priorities are in Australian equities,” Hallinan says.
More than half of last year’s growth in managed accounts was organic, as advisers increasingly prefer them for a certain client segment, IMAP chairman Toby Potter says.
“It shows that in a market generally characterised by low growth, managed accounts are the most vibrant area,” Potter says.
TOPICS: managed accounts