The rate of growth in advisers taking up managed accounts has plateaued since 2022, but the flow of client funds continues to grow, new research has found.
The SPDR ETFs/Investment Trends Managed Accounts Report, now in its fifteenth year, shows that 56 per cent of financial advisers use managed accounts, unchanged from 2023 and up by just three percentage points since 2022.
The proportion of advisers using managed accounts had grown strongly, increasing more than threefold from 16 per cent of advisers in 2012 to the 53 per cent figure of 2022.
The latest report, based on a survey of 1066 advisers, shows that in 2024 the proportion of “non-user” advisers – defined as those who haven’t used managed accounts and don’t intend to use them in the future – has increased slightly year-on-year from 16 per cent to 19 per cent, but is lower than in 2022 when the figure was 23 per cent.
And the proportion of “potential user” advisers – defined as those who haven’t used managed accounts but may do so within or after 12 months – has decreased year-on-year from 22 per cent to 19 per cent, but is still slightly higher than in 2022, when it stood at 18 per cent.
State Street Global Advisors vice president and ETF model portfolio strategist Sinead Schaffer says the latest figures do not necessarily mean the managed accounts market is saturated.
“We’ve seen it hold steady at 56 per cent usage, but there’s still 20 per cent considering it,” she says.
“That’s a pretty significant chunk of the market.
“So I’d say it’s definitely not saturated, even if you convert half of that.”
Investment Trends chief executive Eric Blewitt says the sector continues to grow rapidly, buoyed by increased flows of client funds from existing users. He says that at the end of December “overall assets in SMA space touched almost $200 billion – $195 billion, to be exact – which is about a 146% increase over the last five years”.
“There’s been significant momentum and acceleration in [new flows], at a greater rate than the growth of advisers using,” Blewitt says.
Blewitt says that on average, financial advisers place a quarter of new client inflows into managed accounts, about the same level as last year (24 per cent) but about six times the level of 2015 (4 per cent).
“Those advisers who actually use managed accounts now place around 41 per cent of their flows into managed accounts,” he says. “Twenty-five per cent is across the whole market, and of the 56 per cent [of advisers] that use, about 41 per cent of flows go in.
“The managed accounts train continues to roll and continues to accelerate.”
The Investment Trends report reveals different use-cases for advisers, apparently linked to how long the adviser has used a managed account.
“For those who have been using managed accounts for more than five years, they significantly over-invest because they see the utilisation to be able to achieve full asset allocations for the managed account,” Blewitt says.
“For those who have only been using it for less than three years, they’re seeing real value to be able to use it for some of their lower-balance clients. So it’s moving more mainstream.
“And for those coming in relatively new into the market, it’s a reduction in the platform fees. So you start to see it feed into a number of different parts of the market.”
Blewitt says the average time saving to advisers delivered by managed accounts stood at just less than 23 hours a week, compared to 17 hours in 2023 and just less than 16 hours in 2022.
Advisers are saving time on investment administration and on selecting or researching investments for client portfolios (both about three hours). It’s making communicating portfolio changes to clients more efficient, saving on average 2.3 hours a week; and time preparing of Statements of Advice and Records of Advice have been reduced by, on average, 2.7 hours and 2.8 hours a week, respectively.
Blewitt says advisers are using the time freed up to focus on productive activities, and managed account utilisation is “actually really adding value to the practice”.
Schaffer says managed accounts are now being used by advisers to serve a wider range of clients.
“It’s great to see that these are actually being used across all different client bases, and not just for the wealthy,” she says.
“These are appropriate for [low balance clients]. Something like 40 per cent of advisers will use this for the majority of low- balance clients – that’s anyone with less than $100,000. That’s up 33 per cent from last year, which is a pretty significant jump and it’s actually the largest jump we’ve seen across the different investor types.”
Schaffer says the overwhelming majority (80 per cent) of advisers use separately managed accounts on-platform, as opposed to using external managed discretionary accounts or MDAs offered in-house.
Of those that use SMAs, a growing majority of advisers prefer off-the-shelf models, with fewer opting to use models built for or by their licensee, or for or by their advice practice. But they’re choosy about the models they will use.
“There’s 1100 investment options, in terms of the managed accounts you can pick from, but on average it’s only 25 that will sit on an adviser’s approved product list, and only 19 get used by the adviser on average every year,” Schaffer says.
“It does put forward the question of why are advisers using less than 1 per cent of the universe that’s available?
“The number one thing, the most important thing that comes through, is performance. Sixty-eight per cent are making their decisions based on historical performance of the past.
“And the least important thing to them was the ability to white label – 35 per cent said that was one of the least critical factors that determine what they’re going to recommend.”
