Customisation of managed portfolios offers advice practices the ability to imbue their investment philosophy through an outsourced offering, but not all business models suit this solution, as a panel at Professional Planner Researcher Forum heard.
Debating on the merits of using a standardised managed accounts service or a customised solution, SQM Research head of dealer group engagement Matt Hattersley told the forum while customisation might seem appealing it isn’t efficient for every business model.
“When I’m talking to the larger managers who run the standardised solutions that we rate, they say they’re getting great flows from businesses that tried the customisation route and have gone it’s not quite right for us now, and they’re moving into the more standardised offer,” Hattersley said.
“There’s going to be movement both ways, and it will really depend on the business model.”
Research IP head of research Rob da Silva agreed and said there’s always a market for standardisation versus customisation in anything, pointing to fast food behemoth McDonalds making “a tonne of money” being standardised across the world.
He suggested customisation has increased in popularity due to “an innate interest in personalisation for all of us in everything that we do”.
“Right now [managed accounts are] sitting in the middle ground between absolute personalisation in SMSFs and high-net-worths…versus mass market which is retail super funds,” da Silva said.
HUB24 director for strategic development Jason Entwistle said the platform had shifted from offering customised managed portfolios to standardisation and back the other way since launching in 2010.
Entwistle said when HUB24 launched it was all customised managed portfolios and they “couldn’t convince the professional managers to actually come on board”.
“We had the global managers and others come so we had a real strong trend towards standardisation,” Entwistle said. “In the last few years, it appears customisation’s back and thriving.”
Entwistle said the platform provider strongly believes in customisation.
“Ultimately, the adviser sits between a standard model and a client’s circumstances and preferences,” Entwistle said.
InvestSense director Jonathan Tolub also referred to technology as a reason for customisation being preferred to standardisation.
“There’s still a trade-off between customisation and efficiency and I think technology has taken us to a certain level,” Tolub said.
“My hope is that, over the next few years, [technology] takes us even further to really be able to add to customisation at the client level without adding too much burden work and lose the efficiency gains that SMAs [separately managed accounts] provide at the adviser level.”
He said he felt “very strongly” that portfolios should be customised but that it did not mean the adviser had “free reign to do anything”.
Tolub provided the example of a client that did not want to own ASX-listed Aristocrat Leisure, a gambling machine manufacturer, but wanted an alternative.
“I’ll suggest another stock that has broadly the same characteristics in a different industry, and I don’t think that massively changes the long term, seven to 10 years outcome of this portfolio, because we made one switch to actually accommodate something that is important to the client,” Tolub said.
“On the contrary, it nurtures a very important emotional relationship between the investments and the client.”
However, da Silva suggested this could be a form of “semi-customisation”. He said it was similar to a product where it has a standardisation level but “a constrained or controlled ability to customise by swapping out manages within…a guard railed environment”.
In October, SQM announced it would collecting data on managed accounts to publish relative performance of the various products available on the market.
Hattersley spoke about the right benchmarks that needed to be put in place in order to accurately compare the performance data.
“We’re just working through collecting and compiling [performance] data to make it available,” Hattersley said.
“We’ll be able to look more closely at that benchmarking issues and work out, you know, what the right benchmarks are, peer to peer, or versus, the more standard benchmarks in the marketplace, but be able to do the comparisons, you know, more directly, on a wholesale basis.”
