Regulatory uncertainty tapers managed accounts growth

Matthew Smith


September 11, 2018

The plateauing growth of new funds in the managed-accounts segment is a product of the uncertainty around regulation of the business models, Institute of Managed Account Professionals chairman Toby Potter says.

While the flow of funds into managed accounts in the last year appears at first glance to be strong, based on the latest IMAP Milliman Managed Accounts Census data, released on Monday, data analysis shows rising investment markets account for a significant proportion of the increase in funds under management for the segment.

As at June 30, 2018, FUM in managed accounts stood at $62.4 billion. The balance of funds in managed accounts in the last six months shows an increase of $5.389 billion (or 9 per cent) over the December 31, 2017, FUM total of $57.05 billion, the IMAP Milliman data shows. For the 12-month year-on-year period, this represents an annual growth rate of 30 per cent, or a $14.46 billion increase, the data shows.

However, inflows into managed accounts over the last six months have slowed, when compared with the six months to the end of December last year, if movement of investment markets is taken into account, Potter notes.

About $2.99 billion of the increase is due to inflows for funds that are expanding their managed accounts business, compared with $3.37 billion in the previous six months, Potter says.

The total growth for the last 12 months from new funds inflow is $6.36 billion for 2017-18, excluding investment market performance, the IMAP Milliman Census data shows.

The slower growth in fund inflows into managed accounts in the last six months is symptomatic of the holding pattern advice businesses are in at the moment generally, given uncertainty around regulation and oversight, Potter says.

“What I’m seeing and hearing in the marketplace, talking to providers of managed accounts as well as advice businesses, is there’s not a lack of interest in managed accounts,” Potter tells Professional Planner. “The slowdown in new inflows represents the uncertainty that’s affecting the entire advice industry.”

Conflicts of interests inherent in advice practices with a managed account structure was a topic raised during the April hearings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The industry has been left guessing since those hearings about whether the Hayne royal commission, and in turn regulators, will take a hard line against managed account structures. In the meantime, professionals in managed accounts have been focusing on ways to ensure the structures are being used in clients’ best interests.

“Advisers are trying to get their heads around what their entire business models will look like in 2020, it’s not just about managed accounts,” Potter says.

Wade Matterson, Milliman’s Australian practice leader, estimates 45 per cent, or $2.4 billion, of the increase in funds in managed accounts can be attributed to steady growth in investment markets, with the value of the S&P/ASX 200 Accumulation Index increasing by 4.23 per cent over the six-month period. This compares with an 8.37 per cent, or $4 billion, market growth factor in the previous six months and reflects the total market conditions over that time period, Matterson notes.

Forty-three companies participated in the latest IMAP Milliman Managed Accounts Census, ranging from the “very large” players, including major platforms and banks, to managed discretionary account providers within individual licensees who largely operate their service internally, Potter describes.

The IMAP Milliman data shows separately managed accounts and managed investment schemes account for the largest category within the segment, followed by managed discretionary accounts.

Professional Planner, in its October issue, will publish a feature covering the business structures and regulatory environment of the Australian managed accounts segment.

TOPICS:   IMAP,  Institute of Managed Account Professionals,  managed accounts,  managed discretionary accounts,  Milliman,  separately managed account,  Toby Potter

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