What’s behind the 146pc growth in managed accounts?

Managed accounts continue to see exponential growth for financial advisers looking for greater efficiencies in their role as money managers.

According to a report from Investment Trends and State Street Global Advisors, there has been a record 25 per cent of all new client inflows now being placed into managed accounts.

The growth reflects the rising appeal of managed accounts for financial advisers, with the proportion using them tripling from 18 per cent a decade ago to a record high of 56 per cent today, according to the 15^th annual SPDR ETFs/Investment Trends Managed Accounts.

A further 19 per cent of advisers have indicated their intention to switch to managed accounts, taking the total possible reach to 75 per cent in the coming years.

As it stands, funds under management (FUM) inside managed accounts have surged 146 per cent in five years to exceed $194.85 billion.

The significant growth of managed accounts has been driven by ongoing capital markets instability and fanned by economic and geopolitical tensions globally, the report said.

Managed account advisers have been particularly bullish in their investment options over the last 12 months, adopting growth-orientated investment strategies for their clients more than twice as often as defensive options (64 per cent versus 24 per cent).

Some 59 per cent of advisers cite managed accounts as ‘freeing up their time’, with advisers now reporting they, or their support staff, save on average 22.8 hours per week, up from 17.1 hours last year by using them, State Street Global Advisors’ vice president Sinead Schaffer tells Professional Planner.

The most popular reasons for recommending managing accounts to clients includes performance, fees, availability of their main investment platform, reputation of the asset manager, and asset class exposure, she says.

“As expected, more advisers are using these structures for low balance clients, with 40 per cent of existing managed accounts advisers believing it’s appropriate to hold the majority of assets in a managed account for clients with balances less than $100k, up from 33 per cent the previous year,” Schaffer says.

“Financial advisers mainly use managed accounts as a core, long-term portfolio allocation solution, dedicating 60 per cent of new client money to core investments, 55 per cent of that core to managed accounts and they plan to keep the investment for an average of 7.8 years.”

The Institute of Managed Account Professionals data shows growth has been particularly strong that in the six months to 31 December 2023, with FUM in managed funds increasing by 20 per cent during that time.

The investment markets recorded improved growth in the second half of 2023, with a 7.6 per cent increase in the value of the ASX/S&P200 Accumulation Index, giving an annual growth rate of 12.11 per cent in 2023, IMAP’s data shows.

The subsiding inflation data, receding recession risk, along with the tech sector growth were key drivers for the strong equity performance and provides a positive platform for further growth in 2024.

IMAP chair Toby Potter says strong inflows of over $15 billion were reported for the last half of 2023

“The widespread adoption of managed accounts by licensees, their advisers and by their clients is creating efficiencies in advice practices, and benefitting from professional portfolio management and the ability to manage diversified portfolios more effectively,” Potter says.

Potter says that the platform providers’ expansive use of separately managed accounts as a vehicle to service the adviser/licensee market has driven FUM growth.

“The FUM census collected data from 46 large and smaller organisations with varied offerings, which adds up to a healthy competitive market with a broad range of offerings to meet differing needs from both client investors and advisors,” Potter says.

“Managed discretionary accounts (MDA) are continuing to grow too, helped by the tailoring, efficient implementation and operation of MDA programs.”

However, IMAP’s data reveals that there are some concerns around service inflation remaining elevated and geopolitical uncertainty around the US election, which could continue to present potential headwinds.