Produced in partnership with BlackRock Australia.
The proportion of financial advisers using managed accounts has tripled to 59 per cent in the past decade, driving assets under management to $232.8 billion. A further 16 per cent are considering using them.
It is a vastly different market to the one that BlackRock Australia launched its first managed account back in 2015.
A decade ago, only a small percentage of advisers, primarily those dealing with high-net-worth individuals, used managed accounts, and the iShares Enhanced Strategic Model Portfolios (ESMPs) were one of the few multi-asset offerings available to investors in Australia.
Today, there are over 190 managed account providers in Australia.
As an early mover, BlackRock has watched the market change considerably.
According to Katie Petering, BlackRock head of investment strategy, one of the biggest changes, and a major catalyst behind the growth of managed accounts, has been the shift to fee-for-service advice, following the introduction of the Future of Financial Advice reforms in 2013.
Regulatory changes in Australia followed similar changes in the United States, a market that New York-headquartered BlackRock understands extremely well.
“In the US, many advisers have transitioned from a transactional to a fee-based business model over the past decade and now prefer to use managed accounts as a way to streamline their investment processes and spend more time with clients,” Petering tells Professional Planner.
“In many ways the Australian advice market mirrors the US. Both markets have witnessed strong growth of the independent advisory space away from larger institutional financial firms and there has been a similar regime shift which has driven the adoption of managed accounts.”
Improved choice
“The increasing acceptance and popularity of managed accounts has led to greater product choice, improved access and sharper fees, creating a circular effect that underpins the market’s long-term growth”, says James Waterworth, the group’s director of wealth for Australia.
“Over the past 10 years, the innovation and sophistication has exploded,” he says, citing the widening range of off-the-shelf solutions and the increasing ability for advice firms to build customised portfolios.
“As managed account providers get bigger, they’re able to leverage that scale to achieve better pricing from [underlying] fund managers and also partner with fund managers to bring out new strategies.”
This dynamic has fostered product innovation and contributed to the breadth and depth of ETFs, which are increasingly being used as building blocks, alongside direct shares and managed funds, to construct managed account portfolios.
“As our models have grown, we’ve been able to deepen the ETF pool from which our models can choose from,” Waterworth says, pointing to BlackRock’s expanding range of ETFs including gold, infrastructure and factor ETFs.
Last year, BlackRock also launched a series of new ETF exposures, highlighting the sector’s ongoing evolution from the early days of index strategies that replicated the performance of an underlying index.
“As the ETF sector has scaled, and models have scaled, this has led to fee reductions, and these benefits are flowing through to end investors,” Waterworth says.
Highly attractive
A key attraction of managed accounts is the efficiency gains on offer, with advisers estimating that they save an average of 23.9 hours per week.
This compares to 15 hours per week in 2022, reflecting the broader use of managed accounts within advice businesses.
On average, advisers who use managed accounts direct 48 per cent of new client money into managed accounts, up from 41 per cent in 2024.
“While the practice management benefits are extremely valuable and crucial for helping advisers scale their businesses and serve more clients, it is ultimately the investor benefits driving the growth of managed accounts”, Petering says.
“Advisers use managed accounts for a range of reasons but fundamentally it’s because they’re able to give their clients access to cost-effective professionally managed portfolios,” she says, pointing out that average fees have fallen to around 50 basis points from 70 basis points.
The flexibility, transparency and choice offered by managed accounts is particularly important in the current economic environment, given the heightened geopolitical risk and market volatility.
“[Managed accounts] are more relevant today than ever because the ability to have breadth in portfolios and granularity with asset allocation enables us to build resilient, robust portfolios through time utilising the same approach and high-quality insights across all our portfolios, be they, institutional or wealth,” Petering says.
Boom in customisation
An exciting development that BlackRock has observed globally is the mass customisation of portfolios to meet the needs of specific client cohort. It’ll be this capability that gets the 16 per cent of advisers who currently don’t use managed accounts but are considering it across the line, Petering says.
“Those who haven’t adopted managed accounts yet are probably looking for greater scope to customise at scale, rather than off-the-shelf or highly bespoke expensive solutions,” she says.
“In the US, businesses use managed accounts to scale their business and also provide a high degree of customisation, and we expect it to continue here.”
Waterworth says the ability for advisers to deliver customisation at scale using technology will rapidly expand the managed account pie.
“We’re seeing advice groups partner with asset consultants to build bespoke model portfolios that tailor to the specific needs of their clients,” he says.
“Practices that have portfolios with a lot of embedded capital gains may not be able to use off-the-shelf SMAs, and fully bespoke private label SMAs may be too expensive.
“A tailored portfolio can sit in the middle and deliver some characteristics of an off-the-shelf solution, such as strategic asset allocation and some fund selection, but also enable existing assets to transition into the portfolio so not to trigger a capital gains event.”
When it comes to the rate of adoption by advice businesses, Petering says the speed and direction of travel is only going one way.
“The trends we are seeing are only deepening and broadening,” she says.
“The market is evolving and there’s a lot of innovation, which will only drive-up adoption.”
