Managed accounts: Platforms and administration

By Jayson Forrest

Julian Lefcovitch (North), Matt Swieconek (Findex), and Simon Wu (Quest Asset Partners) discuss some of the key factors advice practices need to consider when selecting a managed account on platform or building their own managed account offering.

Making the move to managed accounts is a big undertaking for any advice practice. For businesses looking for a managed accounts solution on platform, making the move requires licensees to first weigh up a number of factors, with platform technology being a key consideration.

Speaking at an IMAP webinar on ‘Managed Accounts: Platforms and Administration’, Julian Lefcovitch — Senior Product Manager, Managed Portfolios at North —says it’s important that the platform advisers use is easy to work with. This includes the adviser portal, which needs to be efficient and provide good reporting functionality. The platform also needs to have a high level of automation and provide straight-through processing.

Julian believes a simple way platforms can help deliver superior client outcomes is by offering a solution that is fee competitive.

“One of the ways platforms can help deliver good fee outcomes for clients is by providing discounted unit classes. This is an opportunity for platforms and Responsible Entities (RE) to negotiate cheaper investment management fees within managed accounts for the benefit of clients.”

Julian also recommends advice businesses partner with platforms that are assertive when seeking cheaper investment options on behalf of clients using managed accounts.

“Managed accounts are a transparent investment solution. It’s important to be aware of the fees you’re being charged and there are no hidden charges. So, partner with a platform that has a transparent fee structure.”

Other platform features advisers should be considering to help drive better client outcomes include ‘simultaneous trading’ — the ability to buy and sell assets at the same time, which minimises the time clients will be out of the market. Fractional units can also be beneficial, where a client is wholly invested in a portfolio, with no excess money sitting in cash.

“I don’t believe platforms are commodities,” says Julian. “There are differences between the solutions that are available in the market today. Lean on your platform to understand what those differences are, and partner with a platform that has a flexible offering. It’s important to partner with a platform that is committed to continuous innovation, which will help future-proof an advice practice’s offering going forward.” 

 

 

Managed accounts: Platforms and administration
North by AMP
Findex
Quest
Julian Lefcovitch - North
Julian Lefcovitch - North
Jaime Johns - Mason Stevens
Jaime Johns - Mason Stevens
Matt Swieconek - Findex
Matt Swieconek - Findex
Simon Wu - Quest Asset Management
Simon Wu - Quest Asset Management

I don’t believe platforms are commodities. There are differences between the solutions that are available in the market today. Lean on your platform to understand what those differences are, and partner with a platform that has a flexible offering and is committed to continuous innovation. This will help future-proof an advice practice’s offering going forward

Julian Lefcovitch

SMAs versus MDAs

As a Managed Discretionary Account (MDA) provider that also utilises Separately Managed Accounts (SMA), Findex’s approach to investing, irrespective of what structure is being used, is the same. It runs a Strategic Asset Allocation (SAA) and Tactical Asset Allocation (TAA) across its portfolios.

According to Matt Swieconek — Head of Investment Relations at Findex — if an advice business is looking to achieve a similar type of asset allocation with the use of SMAs on a platform, it can do that in a couple of ways. It can utilise sector specific SMAs to build out its asset allocation, or it can use multi-asset SMAs.

However, he warns the latter approach could be unaligned with an advice business’s ‘in-house’ view on asset allocation, because it means they are essentially investing into a multi-asset vehicle that is utilising SAA and TAA, which has been developed by the investment manager.

If an advice business wants to have its own ‘house views’ embedded in an SMA by also acting as the portfolio manager, Matt says there is a costly and time-consuming process involved working with the platform to enable the business to act as the responsible entity. In addition, there’s the due diligence process a business will have to undertake of having its Product Disclosure Statement (PDS) included on the platform, which requires considerable expertise to manage.

“That’s why we’ve elected to primarily use an MDA structure for many of our clients, because that structure allows us to embed our own SAA and TAA within our own series of models over seven different risk profiles.”

Findex has a variation to its licence to allow it to offer an MDA service. It requires clients to sign-up to an MDA contract and its investment program. The investment program specifies the asset allocation clients have and the ranges in which Findex has discretion to move. As part of the requirements of an MDA, this structure can only be sold with personal advice and that advice must be refreshed no less than every 13 months by Findex.

Matt concedes that although there is more work required by the licensee when operating an MDA, this solution does provide greater flexibility, such as enabling certain sectors/assets to be excluded for clients, which might not be possible with an SMA.

“Whilst it’s important to partner with a platform that has a great breadth of investment choice across funds, ETFs, and listed securities, it’s not always the case that all of the assets we want to invest in are held on the platform,” says Matt. “We need to ensure we’ve got a good understanding and relationship with the platform to expedite the process of getting a fund listed onto an Approved Product List (APL), so we can then have that included in our model portfolios.”

Simon Wu — Head of Distribution at Quest Asset Partners — agrees it’s important to have a good relationship with a platform. Quest offers concentrated Australian equity portfolio SMAs, but in order to get an SMA on platform, there are numerous requirements that first have to be satisfied. These include: attaining investment ratings, satisfying minimum fund obligations, and providing a track record of investment goals being achieved.

Capturing the hearts and minds of people won’t happen over night, it does take time. You need to clearly articulate why you’re going down the managed accounts path and explain the benefits in doing so. You need to involve advisers and support staff in this journey, and ensure you’re properly resourced in order to make this is a smooth transition.

Matt Swieconek

Portfolio construction considerations

For advisers looking to develop their own managed account offering and wanting to add their structure to a platform, Julian warns there are a number of important considerations they need to think about.

“If an advice practice is building a managed account from scratch, there is a heavy investment in time to set this structure up. So, you need to ask yourself, ‘Is this really the path I want to go down?”

He says there is a misconception that retail managed account offerings are too generic. The reality is, the retail menu of solutions often encompass the best ideas in the market from leading managers. Julian believes it’s worth first looking at the retail menu and ascertaining whether your investment philosophy aligns with one of those managers.

Matt agrees: “You need to ask yourself, why are you doing it? If you’re able to replicate what you’re seeking to achieve with a product that’s already available, why reinvent the wheel?”

According to Matt, there are a myriad of factors for advisers to consider before going down the custom route, with many of these factors extending beyond just constructing a portfolio and having it listed on a platform. These considerations include:

  • The resources and time involved in developing your own managed account;
  • The governance framework that sits behind the construction of your portfolio;
  • Your investment philosophy and approach to asset allocation;
  • Who will assist you with your asset allocation, like investment managers and asset consultants?;
  • What does your investment committee process look like?; and
  • How much is this going to cost the business?

You need to get buy-in from the people working in your practice. We do that by communicating the benefits of managed accounts. We show them how managed accounts are a more efficient and effective solution

Julian Lefcovitch

From an advice business valuation perspective

With the current high level of merger and acquisition activity in the market, the general consensus is that from a valuation perspective, where advice firms have adopted managed accounts, it has increased the valuation of those businesses.

Julian confirms selling an advice business with a managed accounts offering makes that business more attractive to prospective buyers.

“If a buyer is looking at an advice business that has, say, 400 clients, and all those clients are invested in different assets and in different portfolios, it becomes a challenging transition for the buyer to manage,” says Julian. “However, if a firm is using managed accounts for the majority of its clients, it simplifies the transition.

Businesses are more attractive to purchase when they have robust and repeatable investment solutions, and scaleable processes in place.”

From our experience at Findex, moving to managed accounts was actually more cost-effective for clients. That’s because the work that goes into portfolio construction is now less manual for the advice team. Compared to other advice businesses, that has made our advice costs more competitive for clients

Matt Swieconek

Stakeholder communication is key

As an acquirer of a number of businesses over the last 30 years, Findex believes the critical component of any acquisition is “capturing the hearts and minds” of advisers, support staff, and clients of that business. Matt believes this is particularly the case when rolling out a managed accounts offering in a new business.

“Capturing the hearts and minds of people won’t happen over night, it does take time,” he concedes. “You need to clearly articulate why you’re going down the managed accounts path and  explain the benefits in doing so. You need to involve advisers and support staff in this journey, and ensure you’re properly resourced in oder to make this is a smooth transition.”

Julian agrees, adding that by laying the managed accounts foundation early by spending time initially with your advisers and clients to articulate your value proposition around managed accounts, enables advice practices to ensure a smoother implementation journey moving forward.

For Matt, the key to any successful transition and implementation of a managed accounts program is communication — both to advisers and clients.

“From our experience at Findex, moving to managed accounts was actually more cost-effective for clients. That’s because the work that goes into portfolio construction is now less manual for the advice team. Compared to other advice businesses, that has made our advice costs more competitive for clients.

“There are too many investments and options available in the market for advisers to keep on top of. So, it makes sense to outsource the investment decision-making process to the experts, which allows advisers to focus on the advice piece, as well as look after their clients.”

Findex ensures its advice team and clients receive regular updates about investments and market/economic conditions. According to Matt, Findex conducts quarterly investment committee meetings. Immediately following these meetings, any outcomes from an asset allocation and portfolio construction perspective are directly communicated to its advisers. These changes are then passed onto clients within about 10 days.

“And, of course, if any changes are made outside of these quarterly meetings, the same process of communicating these changes to our advisers and clients occurs,” says Matt. “And while this process works well for us, there is a fine line between oversaturation of communication. You need to find the right balance between keeping people informed and engaged, without over doing it.”

As a business, when North sits down with practices and talks to advisers about transitioning to managed accounts, it knows the importance of taking advisers on that journey.

“You need to get buy-in from the people working in your practice. We do that by communicating the benefits of managed accounts. We show them how managed accounts are a more efficient and effective solution,” says Julian.

As a platform and RE, North produces quarterly fact sheets for advisers that contains an economic outlook, investment commentary, and explanations as to why changes have been made to the portfolio. These fact sheets can also be sent to clients. Julian believes this type of communication helps equip advisers with the information they need to have more informed conversations with their clients.

According to Simon, with investment committees bringing greater rigour to the portfolio management process, he believes advisers have never been more on top of portfolio management as they have been since the rise of managed accounts. He says there is now strong governance at each link in the managed accounts chain — from investment committees, asset consultants, and investment managers, through to platforms.

About

Julian Lefcovitch is Senior Product Manager, Managed Portfolios at North;

Matt Swieconek is Head of Investment Relations at Findex; and

Simon Wu is Head of Distribution at Quest Asset Partners. 

They spoke on ‘Managed Accounts: Platform and Administration’ as part of an IMAP Specialist Webinar Series on ‘Making a success of introducing a managed accounts program: Lessons from experience’.

The discussion was moderated by Jaime Johns — Non Executive Director at Mason Stevens.

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