Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 263

10 tips for choosing a managed account

Managed accounts have grown rapidly in recent years, especially driven by 'independent' financial advisers who want to use one platform solution for the administrative efficiency of their office. Advisers are also moving away from the wraps of institutional providers as they seek to become more independent and remove perceived conflicts.

But simply because an adviser is ‘independent’ does not mean there is no conflict in the products they choose. Henderson Maxwell is the highest-profile example following the revelations of the Financial Services Royal Commission. As The Australian Financial Review reported:

“Mr Henderson was also skewered for putting a large proportion of his client book into managed discretionary accounts that included direct shares and charged high fees.”

Henderson Maxwell is not unlike some other financial planning businesses in trying to bundle clients into a particular type of a managed account where the fees are large (2%ish) and often structured as personal advice fees rather than a product fee (which have some regulatory implications). The financial adviser runs the portfolio, often using direct shares.

Watch the total package

Some of these managed accounts are excellent, using investment managers who have the experience and the capacity to research stocks and run the portfolios for the planning group. Direct share ownership structures used by managed accounts can be tax advantageous over managed funds, and transparency is much improved. In the better cases, the total fees are closer to 1% than 2% and trading costs are cheap.

Other times, managed accounts are run by an adviser with a full book of clients to call and write plans for, accompanied by a newspaper and gut feel for research. The trading fees are high, maybe the adviser gets ‘rebates’ from the broker as a reward for having clients who pay a lot in brokerage. In some cases:

  • platform costs are usually around 0.2%-0.5%
  • investment management fees are around 0.3%-1.25% depending on the type of fund
  • the adviser is often charging around 1%.

It adds up. If the adviser is also picking the stocks, then the adviser takes the investment management fees as well, probably doubling the revenue to the adviser. But the client has gone from having a full-time investment team running a portfolio to a part-timer planner who may not have the same experience in portfolio construction, risk mitigation or stock valuation as they do in financial planning.

There can be big differences on the investment side of managed accounts too. At one end is low fees, transparency and professional management. At the other end is high fees with little investment process but a slick sales process. For the high fee options, you usually need to be ‘sold’, a seduction process that will appeal to the heart rather than the head.

If you have a managed account or are thinking of opening one, here are my tips:

1. Check the brokerage. It should be cheaper than you would pay with an online broker, and probably much cheaper. If it is more, then ask questions about how payments are made and whether your planner receives kickbacks from the broker. Check how much the typical brokerage is for your size of account. For some accounts, this can be the largest cost. Brokerage is often hidden. The better managers will be open with the costs, the worse ones will pretend brokerage costs do not exist.

2. Check the platform costs. You should not pay more than 0.5%.

3. Check who is actually managing your money. If you are paying for professional investment management, make sure that it is not being done by a salesperson in their spare time rather than by experienced, dedicated portfolio managers.

4. Check the investment process. There are a number of different investment strategies that work over time. The overwhelming majority of these have a process that is followed. When you see something like “XYZ planning is a style neutral investment manager looking to invest in investments that match its thematic view” what they are really saying is that they will buy whatever they want whenever they want and there is no real investment process. It may work out well. It often does not.

5. Check the investment constraints. There should be some. You want to know that they can’t bundle too much of your money into one investment, and so there should be constraints like ‘no more than x% in any one stock’. You want to know that there are also limits to asset classes. For example, you don’t want to see Cash: 0-100% Australian Equities: 0-100% as the limits. These mean the investment managers can do whatever they want.

6. Check your internal manager costs. If your adviser is putting you into other managers’ products, make sure you understand whether there are also other underlying costs. Say you are paying 1.25% for a managed account with adviser ABC which invests in a model portfolio run by a fund manager XYZ. In some cases, the 1.25% will include XYZ’s management fees, in other cases, XYZ’s fee will be an addition to the 1.25%.

7. Check performance fees and conditions. If you are paying performance fees, then you should have lower base fees. You should also have a highwater mark and a benchmark that actually reflects the return the portfolio should make.

8. Check investment performance. This should be of the model portfolio, assessed by a third party, probably the platform provider. Be wary of advisers who offer (as evidence of performance) individual accounts not assessed by a third party. These can be ‘cherry picked’ and may include assets that typical portfolios didn’t own. Past performance should not be the only thing you look at, but it can be helpful.

9. Check risk metrics. Your investment manager should have some risk metrics, even though they don’t tell the full story. However, if your manager isn’t even watching ratios like volatility, relative return, tracking error or Sharpe ratios, then it is a sign that you have a part-timer running your money. High returns are good, but if your investment manager is using your money at the casino, then you want to know.

10. Check related parties. Who else gets paid? The worst ones are where low fees in one part of an operation are used as a bait for other divisions to make money. Accountancy fees, brokerage fees, platform fees, life insurance commissions, mortgage broking fees can all generate tens of thousands for financial organisations. Say you could have $400,000 in an industry fund costing 0.8% ($3,200 per year) or a managed account provider at 1.1% ($4,400 per year). The tax benefits, transparency and customisation may more than pay for the 0.3% difference in fees. However, if you are also paying $5,000 per year in accountancy costs on a new SMSF and another $5,000 in life insurance commissions, then the equation might not look as good.

 

Damien Klassen is Head of Investments at Nucleus Wealth. This article is general information and does not consider the circumstances of any individual.

RELATED ARTICLES

Investment flows and the trifecta of desire

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Latest Updates

Planning

Will young Australians be better off than their parents?

For much of Australia’s history, each new generation has been better off than the last: better jobs and incomes as well as improved living standards. A new report assesses whether this time may be different.

Superannuation

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

Investment strategies

A steady road to getting rich

The latest lists of Australia’s wealthiest individuals show that while overall wealth has continued to rise, gains by individuals haven't been uniform. Many might have been better off adopting a simpler investment strategy.

Economy

Would a corporate tax cut boost productivity in Australia?

As inflation eases, the Albanese government is switching its focus to lifting Australia’s sluggish productivity. Can corporate tax cuts reboot growth - or are we chasing a theory that doesn’t quite work here?

Are V-shaped market recoveries becoming more frequent?

April’s sharp rebound may feel familiar, but are V-shaped recoveries really more common in the post-COVID world? A look at market history suggests otherwise and hints that a common bias might be skewing perceptions.

Investment strategies

Asset allocation in a world of riskier developed markets

Old distinctions between developed and emerging market bonds no longer hold true. At a time where true diversification matters more than ever, this has big ramifications for the way that portfolios should be constructed.

Investment strategies

Top 5 investment reads

As the July school holiday break nears, here are some investment classics to put onto your reading list. The books offer lessons in investment strategy, financial disasters, and mergers and acquisitions.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.