As advisers navigate the proliferation of managed accounts, one of the issues they face is how to pick the right the one, particularly with further scrutiny expected from the regulator over potential persistent underperformance.
Speaking on the Professional Planner Shape of Advice podcast, produced in partnership with Colonial First State, CFS director for managed accounts Francy Taylor said one of the challenges advisers face with managed accounts is a lack of ratings.
“A fund is rated, there’s a track record of performance to the cows come home, but the RE [responsible entity of a managed account] is very much relied on in terms of the type of due diligence they’ll conduct on the manager,” Taylor said.
ASIC released Report 779 Superannuation choice products: What focus is there on performance? which identified how AFSLs can influence client investment options in choice products, and their obligations to correct underperformance in portfolios.
“That’s where maybe as an RE we need to educate more on what we’re seeing when we do those due diligences and open that up more, so the adviser is very well informed of the portfolio they’re getting,” Taylor said about the ASIC report.
The trends of personalisation and customisation of managed portfolios will be a key area of discussion at the Professional Planner Researcher Forum later this year, which will also feature a Q&A with ASIC Commissioner Alan Kirkland.
IMAP chair Toby Potter said on the podcast that Report 779 offers important insight into ASIC’s perspectives on the obligations for trustees, advisers and licensees, but he added that he doesn’t want to see more regulation or legislation added around underperformance, particularly for the managed account market.
“Because apart from anything else clients have a real interest in the outcomes themselves and do vote with their feet in the event that they feel they’re not getting the outcomes they had expected,” Potter said.
“They’re not passive recipients of the service they have no control over, but it does set some obligations – or it implies some obligations – on advisers and licensees which, in the absence of managed accounts and the improved reporting that Francy spoke about, would be very difficult for advisers to meet.”
Potter said that, ultimately, it’s the responsibility of managed account portfolio managers to monitor performance, while the adviser is responsible for achieving the goals of the client.
“The implication is that an adviser would be expected to be on top of the potential underperformance of every investment for every client, and since every client’s experience is unique, they don’t all have the same five-year experience…it starts to raise some issues of just complete impossibility of monitoring every client,” Potter said.
Taylor agreed with Potter, noting that clients have difference experiences and expectations, based upon how the portfolio has been set up and customised to fit their needs.
“When they customise, they’re either doing a stock substitution or they’re reweighting to cash or they’re actually weighting their portfolio, in their views, of where the market is going to drive better performance,” Taylor said.
“They will customise away from the manager and that is hard then because then you’ve got massive different cohorts of clients that [have] different experiences.
“I don’t know how you could possibly then genuinely put that up against the measurement threshold. I fully support the concept of making sure we’re delivering a good range of portfolios that are likely to give the return or expectation to the client.”
IMAP and Milliman released the latest managed account census data this week, which found there was $205.56 billion in funds under management as of 30 June 2024, a 27 per cent increase from $161.7 billion the prior year.
Potter said the increased take-up in the adoption of managed accounts has been driven by how advice is being transformed as it switches from an institutional mindset with a licensee-approved product list to a decentralised industry led by independent, professional financial advisers.
“We are seeing businesses that want to be able to express their own investment perspectives through managed accounts,” Potter said.
“They may not have the individual scale to do that, or necessarily the time of the principles or the resources in terms of chief investments officers or heads of research within the organisation, so they’re adopting portfolios built by the proliferation of consultants in a way that reflects their own investment perspectives or their own investment philosophies.”
