Managed accounts boom leads to benefits, growing pains

Tahn Sharpe

By

December 11, 2017

Exponential growth in managed accounts has spurred efficiency in financial planning practices, but increased scrutiny of complex fee arrangements and under-resourced providers is coming, a panel at the Professional Planner Research Forum has heard.

After disclosing that the managed account space had grown 20 per cent this year and was now worth about $50 billion, the panel identified efficiency and scale as the primary benefits for advisers. Toby Potter, chair of the Institute of Managed Account Professionals, explained that better technology was streamlining delivery and affording advisers the time to source new clients and get more Australians under advice.

“Technology is a huge factor in MA growth,” Potter said. “It’s now possible to run them across large client bases, which effectively creates an error-free large pool of accounts.”

Potter said cutting time spent writing records of advice was a big part of making planners more efficient, but was quick to point out that clients were the real beneficiaries.

“When I speak to advisers, it’s clear to me that a key reason for them using MAs is that clients get better outcomes,” he said. “Someone’s actually doing something every day to make that client’s portfolio better positioned to meet their personal goals.”

The ability to adjust large groups of portfolios rapidly is also a clear benefit to all, especially whenever fears of a GFC-type event begin to pervade the market. “A managed account is much better able to respond to this than an adviser.”

There was a consensus, however, that the growth of MAs was occurring too rapidly in some corners, with some firms not adequately prepared for the structural change. Lonsec chief investment officer Lukasz de Pourbaix predicted that governing bodies might target this.

“With the explosion of interest in MAs, the level of interest in the processes and structures around them is going to increase,” de Pourbaix said. “Groups that have been running them without the right structures and resources in place will come under increased scrutiny.”

This view was supported by a floor poll of attendants at the forum, where 97 per cent indicated that most independent financial advisers/dealer groups were not resourced enough to become wealth managers.

Efforts also need to be made to simplify the fee landscape, the panel said, as overly complex layering of structures is overshadowing efforts to make MA costs transparent. Potter affirmed, however, that the price of running MAs should go down because increased competition will probably lead to platform fees being used as leverage in the tussle for assets under management.

“The admin cost attributed to running MAs is actually single basis points,” he said. “Platform costs are coming down slower but there is real pressure there; this will lead to platform charges being hotly contested.”

On another panel, David Wright, managing director of Zenith Investment Partners, raised concerns about managed accounts being added to second- and third-tier platforms without consultation from a researcher or consultant.

“It’s a dealer group arrangement that doesn’t have the investment capability knowledge and resources…I have real concerns around that,” Wright said.


TOPICS:   managed accounts,  Professional Planner Research Forum,  Toby Potter