Managed account portfolios produced by research houses and asset consultants are not sufficiently scrutinised by the broader research community, according to a panel discussion.
Research firms are meant to ensure MAPs are fit for purpose and will deliver to investors the promises they make. They are popular among advisers and clients because they offer tax efficiency, flexibility, convenience, and cost savings.
Speaking at the recent Professional Planner Researcher Forum, SQM head of research Rob da Silva said research firms are not examining their own portfolios but this will come over time which will create a flood of potential conflicts.
“The fund houses are not legally required to get research on their products, but a lot of them do for good business reasons.”
He added that writing a report on yourself is “a tricky thing.”
“You really have to dig under the hood and find the details so that you can disclose them to clients, so they’re aware of what they’re buying and how much it’s costing, and they can compare from one place to the other,” da Silva said.
According to AMP senior product manager Jimmy Luo, ‘researching the researchers’ is more like a partnership.
“We work together to build a portfolio that meets our needs and addresses a client’s requirements around meeting their objectives,” Luo said.
“In a way, we’re using them as like a second pair of eyes.”
Luo said AMP generally seeks an external rating on MAPs.
“The whole purpose of that is a give us comfort that, you know, what we’re offering is of investment merit, and also the trustee comfort that we’re not sort of adding on anything willy–nilly,” Luo said.
He added that AMP basically builds bespoke portfolios for the practices.
“While the consultants can charge a fee, we’re very much ‘there’s no wiggle room’ around advisers charging a fee on those portfolios,” he said.
AMP Advice chief executive Matt Lawler suggested at the March Researcher Forum that the industry should set up its own Your Future, Your Super style benchmark for managed accounts before the regulators step in.
Clients happy to enjoy the ride
Plan Protect founder and senior adviser Janne Ashton Aston believes there would be additional “comparison between other managed accounts” if a more structured research process were applied to the MAPs her practice uses.
She said her clients are not necessarily interested in these details, however.
“What they don’t want to know is if this is the actual best thing they want,” Aston said. “They regularly say to me, ‘We don’t worry about money – that’s your job’.”
Ashton said managed accounts had brought benefits for her advice business along with advantages for clients. But she said that, while formal research or ratings of the portfolios her firm use hadn’t been considered necessary, “the more you’ve got research to back up what you what you’re doing, the better off you’re going to be”.
“For us, the business case was largely, how can we implement this simply … and with a half a percent lower costs,” Ashton said.
She added there is no way else that they can get that half per cent lower cost.
“I can stand up in court and justify our decision till the cows come home,” Ashton said.
“Whenever we’re doing [statements of advice], I look at it in terms of, can I back this up in court? That is my filter.”
Netwealth’s current research process
Wealth manager Netwealth has a team of six researchers who look after all available investment options.
“In terms of the due diligence that we do, we typically break it down into three high level areas,” Netwealth head of investment research Leader Simatupang said.
“First is the investment manager himself, including the operational due diligence. Do they have the proper corporate governance structure? We also look at the infrastructure system they’re using, all their compliance policies, how they deal with conflict, how they manage conflict, the control of the void, and the disclosure of those conflicts.”
After that, Simatupang said the investment strategy and objective are reviewed.
“We also look at the relevant market benchmark, whether the portfolio has exposure to and against the peer group for that period activity,” he said.
“These all to provide us a holistic understanding of that key drivers of their investment performance.”
