Market drawdowns in March this year showcased just how far managed accounts and investment implementation technology has come, experts have said.
Indeed, as recent as in the last five years there has been shift towards discretion in investment implementation which has not only blooded new technology but also spawned an institutional-style approach to investing client funds, the experts outlined.
Changes to investment implementation approaches are part of a push to better support holistic, bespoke client advice, James Mantella (pictured, left) head of managed investment products at Netwealth, said.
“By building that efficiency, it enables the adviser to focus on the needs of the client. It also means that there’s more time to educate clients and share insights,” he said.
Mantella revealed a doubling in the size of its managed accounts business to in excess of $6 billion in the last 12 to 18 months, driven by growth in retail managed accounts and private label managed accounts. This growth came during a period of global economic volatility, a clear sign that the processes adopted over time has put it on an enviable growth path, he said.
Mantella joined Alan Kenny, Ironbark Asset Management’s head of corporate trustee and client solutions for the latest episode of Professional Planner’s Shape of Advice podcast series.
The pair revealed that the trend toward tinkering with the investment implementation function is driving further industry fragmentation, turning heads across the broader industry in a year of economic uncertainty and loss. The change to the service offering comes as banks continue to exit the wealth space, contributing to mass industry fragmentation that will continue to unravel for years to come.
Mantella admitted that Netwealth has come a long way from the paper-based approach common across the industry a decade ago. Processes have shifted to investment platforms, tech-stacks and automation in recent years, he said.
While advisers’ investment propositions haven’t changed, the delivery of advice and the technology required to deliver and support investments have transformed the industry, Mantella said.
Netwealth’s usual 150 asset allocation changes per month rose to 450 as the market experienced major trading shock due to the pandemic, according to Mantella. The usual 2,000 trades managed by Netwealth per day rose to 14,000, peaking to 40,000 on a single day in March.
The fact that internal systems were able to handle such an extreme volume spike proves that managers can work at speed, using their discretion to adjust portfolios and ensure that portfolios are positioned to manage any downside risk, Mantella says.
But as fragmentation of the industry continued, buying power has become essential. In-house capabilities will need to deal with illiquid assets, hedge funds and offshore vehicles, direct assets and more, Ironbark’s Kenny commented.
“We think there’s a real space here for advice businesses wanting to build tailored portfolios, which is where we see massive growth. To give it context, we’re not talking about things on the shelf or menu. This is not about standardised portfolios,” Kenny said.
He predicted that investment platforms will need to evolve to support larger groups, which will ultimately lead to better client outcomes. “It will be about being able to command not only institutional pricing, but also tailored solutions from underlying managers.”
However, Mantella insisted that there’s no right structure when it comes to delivering a solution, with the size of the group and internal capability within a firm coming into play.
“I don’t think there’s a one-size-fits-all, or a firm figure that a group needs to meet to deliver a solution. It’s about ensuring the right people are making decisions and are setting a corporate charter, Mantella said.
Kenny added that being able to command institutional pricing and tailored solutions from underlying managers will be essential in the future as changes to investment implementation measures continue to evolve.
Platforms will need to progress alongside the desire for new investment delivery methods, he says. “I don’t want your offshore product. I actually want you to build me a fund that’s specific to my needs.
“Ultimately, that’s going to lead to better client outcomes because you’re going to have more consistent investment performance, and all the benefits you get from having broader choice,” Kenny said.