The rise and rise of managed accounts, especially separately managed accounts (SMAs) and managed discretionary accounts (MDAs), has reshaped the economics and efficiencies of financial advice practices and licensees.
But the benefits for clients can be diluted or indeed lost altogether if investment performance is persistently poor, or if a managed account is wrapped up in high – and even worse, also opaque – fees.
The 2025 Professional Planner Licensee Summit heard at the end of the day, if a managed account does not produce a superior after-tax and after-fee return for the client then it leaves advisers and licensees open to the accusation it was a better deal for them than it was for the client.
It also opens the door to regulators to act against managed account operators that deliver persistent underperformance.
A poll of delegates at the summit found that about half of the businesses that had implemented managed accounts believed the benefits were roughly equally shared by the business and by clients. But only 7 per cent believed the benefits have been clearly in favour of the client.
Particularly as revenue from product commissions has ceased, and as the value of holding an Australian financial services licence per se has diminished, licensees have sought new revenue streams.
The summit heard that in one licensee’s case, “traditional” licensee activities used to account for about 90 per cent of total revenue, whereas today, 10 years later, that figure is closer to 30 per cent and the other 70 per cent is made up of activities including investment management.
And for many licensees and advice practices, managed accounts have been central to this turnaround.
Evidentia Group general manager of adviser services Marc Hraiki said analysis undertaken for Evidentia by research group NMG showed that managed accounts are expected to grow from $230 billion in funds under management as at December 2024 to $474 billion by 2030, representing a compound annual growth rate of 15 per cent.
MDAs are slated to hit $110 billion, while SMAs could reach $338 billion. Hraiki said the analysis showed that most of this is driven by so-called “fast-horse” tailored SMAs –managed accounts built to rapidly scale-up and bring efficiency to practices’ investment offers – growing at 21 per cent a year.
Primary users
Hraiki said the NMG analysis found 48 per cent of advisers are “primary users” of managed accounts, which means they allocate three-quarters or more of all client flows to them, and the figure is expected to grow to 65 per cent of advisers by 2030.
From the perspective of many licensees and practitioners, managed accounts offer demonstrable advantages. Lifespan head of research and managed accounts Ian Holliday said the appeal includes “efficiency in your business, not just because you want to get more clients, but because of compliance and staffing”.
“You can have less staff, more clients, more efficient business, more profitable business,” Holliday said.
That efficiency can translate into better investment discipline, especially in volatile markets. Holliday said managed accounts are particularly beneficial for nervous clients who might otherwise sell at the worst possible time.
“When markets drop, they usually want to sell at the bottom,” Holliday said.
“Managed accounts really help those clients who say, ‘the world’s going to end, I want to sell everything’.”
Hraiki said key benefits include professional implementation, timely execution, and bespoke portfolios that reflect the strategies set out by advisers.
“They are built to a client profile,” Holliday said, and done well they can also reduce costs.
“We [Lifespan] use our scale to negotiate some of those price inputs. All of those cost savings that are delivered are a benefit to the client.”
In addition, a well implemented managed account can offer tax efficiency to managing clients’ investments, including individual cost bases and avoiding embedded tax liabilities the exist in unitised products.
“You’re not buying into an embedded tax liability,” one summit delegate explained. “That is a big tax efficiency, particularly when you do have turnover in the portfolio that can be avoided.”
Concerns remain
Despite these advantages, some concerns remain about the implementation practices, and whether managed accounts always and necessarily are in a client’s best interests.
Arch Capital managing director and financial adviser Nigel Baker manages around $500 million of assets for clients, but doesn’t use managed accounts and has no plans to.
“Seeing some of these stats, it’s really, really impressive, and talking over the last few days feel that maybe our head is in the sand, but we haven’t used managed accounts.
“We did look at them when they came to the market 10 or 12 years ago, and to this day, still haven’t seen a reason to [use them],” Baker said.
“We feel like we’ve been able to create that client outcome and efficiency without managed accounts.”
Baker said concerns about costs, transparency, and conflicts stood in the firm’s way.
“I’m not representing a group with 100 or 200 advisers where I can see [from] the discussion in the last few days that we can absolutely see some of the efficiencies, absolutely,” he said.
“Initially, we were worried about some of the high costs. There seemed to be another few layers of cost coming through, which we felt was going to make it expensive. There was a bit of a transparency issue and, I’ll be honest, conflicts that we weren’t comfortable with; and we didn’t see it really solving the problem.
Baker said it is telling that managed account implementation has grown rapidly even though, in his view, evidence of clear client benefit is limited.
“Now 46 per cent of the industry does see it solving the problem, so that’s interesting,” he said.
“It still interests me how the take-up has been so rapid…when there isn’t a lot of data or evidence around the outcomes.
“Is there enough evidence to show that outcome is better? Is there a conflict that [an adviser] is somehow motivated to use that managed account, which may not give the client as good an outcome as just putting them in a diversified index fund?”
Holliday said it is possible for the pursuit of efficiency gains on the adviser’s side to create a hidden conflict within a business, and advisers should be aware clients notice things like that.
“If you think about the cost of serve to a client, if you have a managed account rather than a manual model portfolio, should the adviser charge less for that client?” he said.
“[The advisers] get all the benefits in theory: more efficiency, more clients. That’s where the conflict can really be noticeable by some clients. [They] go, ‘actually, it’s more efficient for you, why am I paying the same as a less efficient solution?’.”
Addressing persistent underperformance
The corporate regulator has flagged persistent underperformance of assets within managed accounts as an ongoing concern.
ASIC expects managed account operators to closely monitor the performance of the investments they offer, to identify instances of underperformance, to investigate and document the reasons for underperformance, and to justify why an underperforming investment may nevertheless still be in the best interests of the client.
However, a clear flaw in this approach is revealed by a simple question: underperforming compared to what? Without clear, common and agreed benchmarks, performance measurement is fraught, and it exposes the industry to the possibility of a regulator-defined performance test being imposed on providers.
The summit heard that the difficulties of meaningful performance reporting is often caused by how fees are structured and charged. Baker said a lack of transparency “prevents the ability for various entities to assess what actually is the performance of these things”.
The summit also heard that performance comparisons across SMAs are difficult because of variability in platform processes, fees, and administration.
Holliday said there should be “should be some way that the regulator goes, ‘if you’re running an SMA, there should be a performance test on that’.”
But he acknowledged the difficulty of implementing this fairly: “What’s your benchmark? What’s your philosophy?”
Baker said it would be telling if regulators were to start taking a deeper interest in the sector.
“If client outcomes are amazing, they’re not going to come near it,” he said.
“If they do start looking at it, then they’re obviously seeing some outcome somewhere that someone’s saying, ‘hey, look at this.’”
The lowest common denominator
A summit delegate noted that the entire sector could be dragged down by “the lowest common denominator” if accountability isn’t clear, standardised and enforced.
“Our reputation is on the line. Lots of people could be doing it well, but the lowest common denominator is what brings you down,” the delegate said.
Unwelcome (and possibly counter-productive) intervention by regulators might be avoided if the industry were able to effectively self-regulate. The summit heard that research and ratings group Adviser Ratings is working to create a voluntary reporting framework, called the SMA standard, to allow comparisons between SMAs across platforms and providers. Its objective is to tackle the current lack of consistent performance data and pricing transparency.
Hraiki welcomed the idea and said the industry is “getting better, and I encourage us as an industry to get better, around being able to actually classify what those specific benefits are”.
Earlier in the summit ASIC Commissioner Alan Kirkland said the regulator was closely monitoring conflicts of interest inside advice delivery models. Conflicts of interest existing in the vertically integrated (VI) wealth business structures that dominated the landscape before the Future of Financial Advice (FoFA) regulatory reforms banned investment and superannuation product commissions, and the Hayne royal commission laid bare the worst outcomes of the VI model.
It appears the regulator is concerned that potential for conflicts may re-emerge where licensees and advisers develop in-house investment solutions and use them for all clients, to the exclusion of other options.
Holliday said the dilemma advisers face is that “ultimately, when you’re recommending a product to a client, you need to make sure that product is in the client’s best interest”.
“So how are you going to tease out the client benefits without knowing what they really are?” he said.
Baker put it more bluntly: “Only 7 per cent of this room thought these were really built for clients, which is interesting, given the knowledge in this room.”
However, Hraiki said that when done well, the benefits for clients are real and can be measured.
“There is indisputable evidence that there’s benefit for practices, licensees from a governance perspective, and for clients around the investment outcomes,” he said.
