Steven Tang and Lukasz de Pourbaix

Advisers are mistaken if they believe managed accounts will provide an easy revenue stream, according to investment consultants, with closer regulatory scrutiny of the sector expected in the future.

The corporate regulator has increased its focus on conflicts in managed accounts as advisers who elect to put clients into in-house model portfolios en masse or charge managed account fees come under the spotlight.

Brent Bevan, head of investment consulting at MLC Asset Management, says there is a cohort of businesses that see managed accounts as the ability to start their own funds management arm.

“The regulator has made noises around that and see it as pure vertical integration,” Bevan says.

Steven Tang, head of consulting at Zenith, says advice firms adding a managed account fee to their service proposition was far less commonplace now than in the past.

“The managed account for them is moreso about the efficiencies they gain rather than the fees they get,” Tang says. “Most of them now are fee-for-service, not for a fee on top of the managed account.”

Tang says there are still advisers that charge separate managed account fees, but the responsibility is on them to prove the charge is justifiable.

“We prefer they don’t, but at the end of the day it’s their business decision for how they do it and we’re seeing less of that,” Tang says.

“Unless the adviser can sell the benefit to the client we don’t see any inflow. At the end of the day, they have to be able to explain the benefit of them.”

Lukasz de Pourbaix, chief investment officer at Lonsec, agreed that the trend away from charging managed account fees is already happening.

“In the early days you did have some dealer groups looking to generate revenue streams off their managed accounts, that’s off the table at the moment,” de Pourbaix says.

“If you speak to product issuers of separately managed accounts, they’re not seeing new groups coming in to generate fees.”

He says that conversation has shifted, which meant the types of businesses looking to develop a managed account program doesn’t use revenue streams as their primary goal.

“[The primary goal] is business efficiency,” de Pourbaix says. “Dealer groups want efficiencies, risk management is another one – they want to ensure the portfolio solution is being managed in a professional way.”