ASPIRE to portfolio tailoring in managed accounts

David Hutchison (North) believes the industry needs to broaden the appeal of managed accounts to make this structure more attractive to advisers who seek the flexibility of adjusting client portfolios, without having to go down the path of full customisation.

Today, about 3-in-5 advisers are users of managed accounts, which has steadily driven the growth of funds under management (FUM) in this structure to about $233 billion (31 December, 2024).

However, as David Hutchison — General Manager, Managed Portfolios and Investments at North — points out, that FUM figure represents only one-quarter of all advised assets in Australia. He believes that if about 60 per cent of advisers are using managed accounts but only 25 per cent of assets are actually in this structure, then the industry still has a number of issues it needs to address to increase FUM.

By Jayson Forrest

Speaking on the topic of ‘Broadening the appeal of managed accounts’ at the IMAP Advice in Action 2025 conference, David believes in order to better understand why it is that two-in-five advisers are currently choosing not to use managed accounts, it’s important to consider how advisers actually construct client portfolios.

According to David, there are five main ways advisers build portfolios:

1. Diversified funds — Historically, advisers used a single diversified fund aligned to a client’s risk profile. Advisers would outsource manager and asset selection, and focus on client strategy and behaviour. Implementation of funds were often via a not-for-profit fund or low cost/passive multi-manager fund.

2. Models (strict) — Advisers closely follow strict model portfolios prepared by their AFSL or chosen researcher that aligns to a client’s risk profile. Advisers focus on client strategy, but also provide investment recommendations as part of their advice and ongoing value proposition.

3. Managed accounts — Advisers use practice/licensee or consultant-led diversified managed accounts (an SMA/MDA version of a model portfolio) and allocate clients based on their risk profile. Advisers focus on strategy as their value-add, but also use investments as part of their value proposition, which are efficiently implemented. This structure creates significant practice efficiencies.

4. Models (guide) — Advisers use model portfolios as a guide. They adjust portfolios prepared by their AFSL or research house, by replacing or adding in preferred managers/investment approaches for their client portfolios. Advisers provide both strategy and investment advice.

5. Self-select — Advisers create their own portfolios for clients, rather than using a set model, either as asset allocators (strategic asset allocators), traditionalist (picking a few managers in each asset class), or bespoke builders (tailoring portfolios to each client). Advisers focus more on investment advice as a core part of their value proposition.

“These are five broad ways advisers put together and manage adviser portfolios. Generally, the further down the list you go, the more of an adviser’s investment philosophy is used, and the more engaged advisers are with clients. There is also greater transparency in the portfolio,” says David. “However, advisers also become less efficient — in terms of practice efficiency — towards the bottom of the list.

“So, the challenge for advisers is how do they actually manage efficiency, client engagement, and client outcomes, in order to be able to deliver a solution for clients.”

Although more advisers are shifting to managed accounts from diversified and model (strict) portfolio approaches, generally there hasn’t been much movement coming from advisers who use models (guide) and self-select as their approach for client portfolios. David believes this is because these advisers still want ‘hands-on’ involvement in portfolio construction, which means they are not big adopters of managed accounts.

“So, why is that?,” he asks. “Today, most platforms are really only supporting two bookend solutions of managed accounts. Advisers either have the option to take something ‘off-the-shelf’, or build a fully tailored offering, which includes the use of an investment committee and asset consultants.

“As a result, advisers who only want to make slight adjustments to a model or semi-tailor a portfolio, won’t actually transition across to a managed accounts structure because their preferred way of running portfolios is not currently supported by most platforms.”

When it comes to adjusting or tailoring a portfolio, David believes there are six reasons — which North refers to as ASPIRE — that influence an adviser’s decision to tailor a portfolio.

1. Asset allocation: Advisers want to make alterations to a portfolio, and blend their best ideas with that of their consultant. 

2. Simplify: Advisers prefer simpler and/or cheaper allocations in some asset classes (e.g. term deposits in defensive, and direct equity within Australian equities).

3. Preferred managers: Advisers, for either CGT or historic reasons, want to maintain an allocation to a key manager in their portfolios.

4. Index: In some asset classes, advisers prefer to use index exposures to reduce benchmark risk and/or cost for some or all of the asset class.

5. Retire: Advisers prefer to use products more aligned to retirement for their retiree portfolios (e.g. income and lower volatility).

6. ESG: Advisers want to replace a ‘core’ manager with an ESG-focused manager.

“These are six broad ways advisers look to tailor the core portfolio they want for clients. However, they generally can’t do this in an ‘off-the-shelf’ managed account on platform, which helps explain why only 25 per cent of advised assets are currently in a managed accounts structure.”

David believes that in order for the managed accounts market to grow, the industry needs to think differently about portfolio customisation. This means managed accounts must support all forms of customisation. However, he says most platforms currently only support three levels of customisation: 

• No customisation is required: The adviser accepts the entire portfolio as provided.
• Investor level customisation: Advisers can tailor managed accounts for individual investors (e.g. income, ESG exclusions, individual preferred managers).
• Naming and branding: Advisers prefer to have portfolios named and/or branded aligned to their practice proposition.

While these three levels of portfolio ‘customisation’ are generally supported across platforms, what isn’t widely available is the ability to blend portfolios. Blended portfolios refer to the ability of advisers to blend their consultant’s portfolio (or researcher, manager or AFSL’s portfolio) by adjusting it to satisfy their clients’ best interests and/or practice preferences.

“If efficiency is the reason why an adviser would use managed accounts, then they don’t want to do things at an investor level but instead, manage it at a practice level. This means running a portfolio that is semi-tailored, rather than fully customised,” says David. “This is the missing piece of portfolio customisation on many platforms.”

David believes when advisers think about a managed accounts proposition and how they might implement this structure, there are two key decisions they need to make. Firstly, who owns the managed account — the advice practice, the licensee, or the asset manager? And secondly, what level of customisation does the adviser actually want in the managed account, like investor level customisation and branding.

“For advisers, the portfolio solutions available today effectively mean they can either take an offering ‘off-the-shelf’ (i.e. the asset manager owns it), or the adviser builds a custom offering for the practice, or the licensee builds an offering.”

However, for managed accounts to significantly grow and shift beyond the current 25 per cent of advised assets in this structure, David believes it’s essential for platforms to think about the forgotten adviser segment — those advisers who seek to semi-tailor their portfolios.

“These are the advisers who want to make adjustments to their portfolios, so they can get these portfolios to look the way they want for their clients, without having to go down the full customisation path,” says David.

By supporting all forms of customisation advisers want in managed accounts, including blended portfolios, David believes there are significant opportunities for platforms to help expand the managed accounts footprint in Australia.

He says this will provide the industry with an opportunity to re-engage with advisers who were prior users of managed accounts, but who were unable to use their preferred portfolio in the managed accounts structure. David also believes it’s an opportunity to convert some of the 20 per cent of advisers who are yet to use managed accounts, due to their desire to have some involvement with investment decision-making, but not wanting to build a fully customised managed account.

According to David, with platforms supporting all forms of customisation needed in managed accounts, including blended/semi-tailored portfolios, it will position this structure as the preferred solution to non-primary users of managed accounts, by enabling them to realise the benefits of managed accounts, like gains in efficiency.

“If we have 3-in-5 advisers using managed accounts, but with only 25 per cent of advised assets in this structure, that means there are many advisers who are not fully allocated in managed accounts,” he says. “So, this option of being able to semi-tailor a portfolio, provides advisers with more flexibility with leveraging the benefits of managed accounts.”

To accommodate the needs of advisers who want to semi-tailor or blend their core portfolios as part of their approach to customising managed accounts, North has incorporated the six elements of ASPIRE in its managed accounts, which enable advisers to make adjustments to the portfolio. By doing so, advisers are able to semi-tailor their portfolios.

According to David, the ASPIRE approach effectively adds the missing piece to portfolio customisation on platforms, by providing a tailored solution for advisers, without requiring them to go through the process and rigours of constructing a fully tailored solution.

By incorporating the ASPIRE approach in its managed accounts, North is able to provide advisers with a range of investment strategies and asset allocations that effectively enable them to semi-tailor portfolios and investment strategies to the needs and objectives of clients. According to David, this approach allows for greater customisation and flexibility for advisers in portfolio construction. 

“Essentially, North is enabling advisers to adjust an ‘off-the-shelf’ solution, rather than undertake a full build, which we believe assists enormously with portfolio tailoring,” he says. “This means, while the manager controls the core portfolio, advisers are able to manage any adjustments that are required to the core. This provides advisers with a semi-tailored solution.”

David acknowledges that as a structure, managed accounts do come with their frustrations. He believes the reason advisers aren’t adopting managed accounts at the rate they should be, is because “as an industry, we don’t provide the options for advisers to tailor portfolios the way they want to”.

“I believe that’s where North is different. With our approach to investing, we’re helping with adviser efficiency around advice execution and reporting,” says David. “Our approach to portfolio tailoring is helping advisers to think differently about managed accounts.

By providing advisers with the solutions they need around portfolio tailoring, we believe it will encourage more of them to take-up and use managed accounts.”     

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

He spoke on the topic of ‘Broadening the appeal of managed accounts’ at the IMAP Advice in Action 2025 conference.