Managing the program

By Jayson Forrest

Running a managed accounts program is not straightforward, with many different components that licensees and advisers need to be aware of. John Burton (Lonsec), Mark Smith (Elston), and David Hutchison (North) discuss strategies for developing and overseeing a successful managed accounts program.

For advice businesses preferring a more tailored solution for their managed account offering (instead of an off-the-shelf product), their reasons for doing so can be varied — ranging from client demand for customisation, through to building scale, and enhancing the service and value proposition of the business.

In a presentation on ‘Managing the program’, which was part of a broader IMAP Specialist Series focused on ‘Putting a managed account program in place’, John Burton — Head of Sales at Lonsec — says regardless of the reasons why an advice business may choose to go down the tailored managed accounts path, the ultimate success for any business with a managed accounts solution — whether tailored or off-the-shelf — is due to: a commitment to planning and implementation, business adjustment, and the focused execution of managed accounts.

“A business must be fully committed to rolling out a managed accounts program. It needs to be clear on its business outcomes, and the entire team needs to be engaged and confident in the process and benefits of change,” says John.

“As a key part of your strategy, you need to have a plan for the implementation of managed accounts. Importantly, you need to make deliberate modifications to your business, which includes adjusting your client value proposition, having a written investment philosophy that’s aligned to your product, and engage in clear and consistent client conversations.

“You also need to be focused in your execution of managed accounts, which includes adviser education and training, as well as organise collateral for client communication and education. Importantly, you need to ensure there is in-house accountability to ensure full adoption of the managed account.”

Mark Smith — Head of Adviser Services at Elston Asset Management — agrees that the underlying motivations for advice practices seeking a tailored managed account solution are varied. To ensure that a tailored solution is appropriate for them, he believes it’s important that advisers firstly understand and can clearly articulate what their investment philosophy is.

“Advice businesses often go down the tailored path because they can’t find an off-the-shelf solution that aligns with their investment philosophy,” says Mark. “Being able to tailor strategic asset allocation (SAA) to a business’s particular needs is important, which is not always available in the solution you’re looking for. There’s also branding and price, which can lead a business down the tailored path.”

However, probably the most important consideration for businesses deciding between tailored and off-the-shelf managed account solutions is the extent to which the business wants to be involved in the investment management piece.

“For some advisers, strategic advice is their core, while for others their value proposition has been built around investment management. So, you need to explore the motivations and understand the key drivers for a business wanting to go down the tailored route,” says Mark. “Make sure you have thought clearly about each of the options available, and their respective pros and cons.”

John adds that with industry data showing that the average advice firm in Australia accounts for about $225 million in funds under advice, advice businesses are typically getting larger, which does make tailoring attractive.

“Advisers want to tailor strategies for their client base,” he says. “They want to improve risk management and want control of the portfolio, but without the execution. This makes a tailored solution ideal for these advisers.”

The success of implementing any managed accounts program — whether tailored or off-the-shelf — depends heavily on adviser engagement and buy-in to the solution. As John says, it’s one of the key pillars of successfully adopting managed accounts. However, he acknowledges that adviser buy-in can be difficult, particularly in larger practices with many advisers and multiple solutions available.

Ask David how long it takes to embed a managed accounts program in an advice business, and he believes it should only take between 12-18 months, although he concedes that on average, most programs take about three years to be fully embedded. He attributes this to practices not having prepared enough for the change management process.

“I’ve seen practices that have been fully allocated in 12 months, and others that have taken between three and five years. I’ve seen businesses with hundreds of millions in funds under management but only have a minor allocation to managed accounts because they spent too much time on the investment component, and forgot about making the rubber hit the road on the implementation and change management side,” says David.

John believes it’s important that advice firms view managed accounts as a business solution they can support, rather than just the next product to use. The entire advice team — advisers and back-office staff — need to be educated about the efficiencies and benefits of managed accounts, which comes down to leadership within the business. This ensures that the entire team is brought along on the journey together

Mark adds that much of the industry narrative about managed accounts over the last 5-10 years has focused on adviser efficiencies and benefits. However, he believes that for those advisers who have yet to be convinced about managed accounts, this narrative should instead focus on client benefits from a best interest duty perspective.

He explains: “No client wants to be client 199 in a Record of Advice (ROA) process that could take three or four months to complete. So, being able to implement investment decisions quickly and treat all clients equitably is powerful, as is the messaging around transparency and being clear about what’s happening with a client’s capital. These are all great client benefits, which makes the managed accounts structure a ‘no-brainer’.”

For advice businesses considering rolling out a managed accounts program, John believes it shouldn’t take any longer than 12 months to reach broad client adoption of managed accounts within the business.

However, he accepts that the time it takes to achieve 70-80 per cent take-up of managed accounts by clients — which he believes is an indication of overall success when offering this solution — can vary greatly. Smaller firms can generally achieve this faster (possibly within six months), while larger businesses could take between 12-24 months or longer.

“A 70-80 per cent take-up by clients will provide a 20-30 per cent uplift in capacity within the business. However, it’s what a business does with that capacity that’s important, which is why businesses need to be clear about the outcomes they are seeking to achieve,” says John.

“If they’re seeking growth and they want to take on additional clients, then there’s an extra 20-30 per cent in capacity per adviser to achieve that and those clients will go straight to profit. However, if it’s about taking pressure off the back-office, or the business wants to integrate a merger or acquisition, then they’ve got the additional capacity to do that. So, it’s important that a business is clear on the outcomes it’s looking for.

He believes leadership is the key to achieving broad client adoption of managed accounts within an advice business. A business needs to treat the implementation of managed accounts as a change management program, with the leadership team driving that transformation within the business.

It’s a view supported by Mark, who says Elston has seen the most success with businesses implementing a managed accounts program coming from those advice firms that started their change management well before they began their implementation process. This includes initiating an effective client communication strategy that explains the journey towards managed accounts and the benefits of change.

“This journey needs to be led top-down and everybody needs to be on the same bus,” says Mark. “It’s critical that all advisers are on that journey together and onboard with the whole process.”

According to internal analysis conducted by Elston, Mark says its managed account portfolios are not only delivering from an investment perspective, but providing clients with clear and improved outcomes.

“We do a lot of work assisting advisers to communicate what’s happening in the managed account with their clients. This means clients are turning up for a review meeting and not spending 45 minutes talking about what’s happened to their portfolio, because they already know.”

Mark says keeping clients aware and regularly informed of how their capital is invested, as well as what’s happening with their investments, has provided Elston’s investors with an improved client experience and an overall better investment outcome.

“The transparency of the managed accounts structure provides better outcomes for clients, compared to other opaque investment structures we’ve used over the years. This transparency is reassuring for clients, enabling them to see their capital is being managed according to the strategic advice they’ve been given.”

And for advisers who have gone down the managed accounts path and achieved 70-80 per cent take-up of clients, the feedback from them has been clear, says Mark.

“The time these advisers can now spend with existing clients, as well as take on additional clients because of the extra capacity this solution has provided them with, has been a definite improved outcome for them.”

Mark believes the managed accounts story will only get better, as platforms develop the technology to help with the tailoring of managed accounts, as well as add further improvements and capability to the structure.

Elston officially launched on October 1, 2008 — at the height of the Global Financial Crisis — as a high-net-wealth advice firm, which has since developed into a broader business, covering advice and investment management. For other advice businesses with similar aspirations, what does it take to make a success of this type of strategy?

“It’s a good question,” says Mark Smith — Head of Adviser Services at Elston Asset Management. “From the get-go, Elston took the view that if you’re going to do something right, you have to specialise in it, whether that’s advice or investment. So, from the beginning, we separated the business into the two — advice and investment. Then it was about making sure we invested in capacity for these areas, which from a portfolio management perspective was about education, governance, and ensuring we had all the necessary resources in place.”

Although Elston developed its first SMA in 2012, it didn’t actually take it to market until 2016. That’s because the business wanted a five-year track record before going to market. Naturally, there were significant costs involved before Elston began making any money from its SMA.

Mark believes the key behind any successful business is to have an edge and to be able to clearly define what that edge is to clients. This includes being able to demonstrate the business’s experience and capability, like the skills and diversity of backgrounds within the team.

“Undoubtedly, there are costs involved and you have to be prepared to wear those costs. You can’t simply hang the shingle out, saying you’ve got managed accounts and it’s all happy days. There’s a lot of work involved. You have to be committed long-term and ensure you’re constantly evolving and improving as you grow your business.”   

John Burton is Head of Sales at Lonsec;

Mark Smith is Head of Adviser Services at Elston Asset Management; and

David Hutchison is General Manager, Managed Portfolios and Investments at North.

They were part of an IMAP webinar panel discussion on ‘Managing the program’, which was part of an IMAP Specialist Series on ‘Making a success of a managed account program’.

The session was moderated by Toby Potter — Chair of IMAP