Not all managed accounts are created equal – here’s why it matters

The diversity of managed accounts now available as the local industry surges to $150 billion in assets is proving a boon for advisers and their clients. Managed accounts can provide much needed tools to maximise the efficiency of advisory practices, while offering end investors truly institutional grade investment portfolios.

But not all managed accounts are equal. Some have greater features – some visible, and some under the bonnet – that can provide more robust outcomes for all parties, from both investment and administration perspectives.

There are several considerations for advisers seeking the managed accounts which will best fit their practice.

For example, providers combining global capabilities with local expertise can offer access to investment managers and strategies which are otherwise inaccessible to retail clients, either because these investments are reserved for institutions, or because they have been closed to new investments for some time. This is particularly true of multi-asset products with the scale to offer exposure to a broad range of offshore fund managers, enabling cost-efficient diversification of portfolios.

Such providers typically also share the same primary research platform which serves institutional investors, ensuring their managed accounts benefit from the highest-grade investment research available.

History also shows the investment landscape inevitably shifts over time as financial products adapt to both changes in the underlying structure of markets and the prevailing outlook.

As managed accounts are fully implemented and professionally traded, it’s possible for managers to incorporate new investment methods as opportunities emerge. A good example is in private markets. Some managed accounts make allocations to private debt of between 2-3 per cent without jeopardising liquidity by using the expertise of a well-resourced multi-asset provider.

Sustainable managed accounts are another case in point. More are being developed to help advisers meet the ESG criteria quickly becoming critical to some of their clients, primarily as a result of the climate crisis but also due to expectations related to the ‘S’ and ‘G’ of the ESG equation.

Three questions

So, what are the initial factors advisers should consider when looking for managed accounts that are most likely to serve their needs and those of their clients?

Firstly, we learnt in the pandemic that risk management is paramount in all aspects of business. This includes operational due diligence as well as questions around the quality of a fund manager’s team. Advisers should ask themselves if the investment process underpinning a managed account is repeatable and not reliant on perceived ‘star’ individuals who may exit a firm.

Secondly, platform availability is key. It pays to know if managed accounts are available on the platforms which routinely deliver the greatest efficiencies to an adviser’s practice, while also supporting end investors to achieve their financial goals.

And, thirdly, price is ever important, but the value equation is critical. The quality of design, construction and management of the portfolio should be carefully considered in terms of the true value advisers and their clients receive. The outright cheapest option is not always the right option. It’s possible, for example, to provide a low-cost managed account comprised of Australian equities, but it won’t necessarily grant investors access to assets – such as global assets and private equity – that may help generate a better risk adjusted return over time or allow the portfolio to better navigate market cycles.

Where to next?

Managed accounts will continue to evolve and provide even greater opportunity for advisers to serve their clients’ needs. Customisation of investments to suit individuals is an ongoing trend that could deliver more sharply tailored solutions within the next five years.

And, in Australia, as a large cohort of Baby Boomers and the older portion of Gen X enter pre-retirement and begin to consider sequencing risk, the development of new managed account solutions becomes possible. For those in retirement, product providers are also considering innovative methods to navigate issues such as the $3 million super cap and estate planning.

Without a doubt, innovative managed account providers will continue to improve all aspects of their offerings so that advisers are best-placed to balance increasing demands on their business with the underlying financial objectives of their clients. It will be up to advisers to ask the right questions to ensure they select those managed accounts that will help to achieve those outcomes.