Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 310

5 flexible features of Managed Accounts

About half of Cuffelinks readers engage the services of financial advisers to help them manage their life savings. Most will meet with their adviser, review their portfolio and then listen to their adviser’s recommended changes to these portfolios. This process of managing client money is old-fashioned, clunky and reactive. There is a better way.

Acceptance of Managed Accounts

Managed Accounts have been around for a while but over the last few years their popularity has soared, not only in Australia, but also in the UK and the US. There is good reason for this as the benefits of using Managed Accounts are significant and varied. According to the 2019 Netwealth Advice Tech Report, 43% of advice firms now use Managed Accounts to run part of their client portfolios, up from 35% in 2017. A recent IMAP/Milliman survey revealed that $62 billion of client funds are now managed via discretionary portfolio methods, double the level of just three years ago.

Source: IMAP Milliman

A Managed Account in its simplest form is an auto-rebalance tool. It permits the advice firm discretion to make changes to their clients’ portfolios without requiring their written approval. This is how superannuation monies are managed in industry and retail funds. The manager has strict limits on the amount of risk that can be taken and the type of assets that can be purchased, and must adhere to these limits.

The Managed Account benefits

Managed Accounts offer a range of benefits that offer clients and their advisers increased flexibility.

First, the money is managed by a professional investment committee, rather than by an adviser who occasionally reads the Fin Review and a stock-tipping sheet. While portfolio outperformance is not guaranteed, the likelihood of things going badly wrong are reduced.

Second, the client’s funds are managed in a much more proactive manner as portfolio changes can be made in an instant. Contrast this with the traditional process where changes were generally only made at the client meeting, which may happen just once or twice a year.

Third, Managed Accounts are more progressive and egalitarian than the traditional way of managing money. Currently, if changes need to be made, it’s inevitably the adviser’s larger clients who will be called first. With a Managed Account, all portfolios of the same risk profile are changed at the same time, which also offers scale benefits.

Fourth, Managed Accounts are transparent. Portfolio performance is published each month and is benchmarked against an equivalent risk profile. There is no hiding, obfuscation and evasiveness. “How are we doing?” is now easier to answer. We benchmark our clients' portfolios against their CPI+ targets and against a basket of comparable portfolios every month.

And fifth, with advisers freed from the tyranny of trying fruitlessly to add value by picking BHP over CBA, they can actually get on with the job of providing strategic financial planning advice, focussing on the clients' wealth plan and helping them achieve their important goals in life.

Sounds good so far.

Are there any disadvantages?

Yes. A Managed Account run by a professional investment committee will likely charge a portfolio fee. This is typically in the region of 0.2% - 0.3%, though lower rates are commonly offered for larger portfolios. This is an additional cost. However, most Managed Account providers are able to recoup most, if not all, of this cost in two ways.

First, by negotiating lower management expense ratios (MERs) from fund managers. With scale comes lower fees, and Managed Accounts offer scale. It’s important to check that your provider passes these rebates on to you, the client, in full. And second, many Managed Account providers are now offering lower financial advice fees if client portfolios are run in a discretionary manner, due to the reduced administrative burden.

It might be time to talk to your adviser about Managed Accounts. They are not suitable for everyone, but they are a big part of the future of advice.

 

Jonathan Hoyle is Chief Executive Officer at Stanford Brown. This article is general information and does not address the circumstances of any individual.

 

banner

Most viewed in recent weeks

Three steps to planning your spending in retirement

What happens when a superannuation expert sets up his own retirement portfolio using decades of knowledge? He finds he can afford much more investment risk in his portfolio than conventional thinking suggests.

Finding sustainable dividend stocks on the ASX

There is a small universe of companies on the ASX which are reliable dividend payers over five years, are fairly valued and are classified as ‘negligible’ or ‘low’ on both ESG risk and carbon risk.

Among key trends in Australian banks, one factor stands out

The Big Four banks look similar but they are at fundamentally different stages as they move to simpler business models. Amid challenges from operating systems, loan growth and neobank threats, one factor stands tall.

Why mega-tech growth are the best ‘value’ stocks in the market

They are six of the greatest businesses ever and should form part of the global portfolios of all investors. The market sees risk in inflation and valuations but the companies are positioned for outstanding growth.

How inflation impacts different types of investments

A comprehensive study of the impact of inflation on returns from different assets over the past 120 years. The high returns in recent years are due to low inflation and falling rates but this ‘sweet spot’ is ending.

How to manage the run down in your income in retirement

The first of five articles on modern retirement income products that aim for an increasing pension that lasts for life and on average should not decline in real terms. They are not silver bullets but worth a look.

Latest Updates

Superannuation

Retirement income promise relies on spending capital

The Government has taken the next step towards encouraging retirees to live off their capital, and from 1 July 2022 will require super funds - even SMSFs - to address retirement income and protect longevity risk.

Superannuation

How retirees might find a retirement solution in future

Superannuation funds need to establish a framework that offers retirees a retirement income solution that lasts a lifetime. It will challenge trustees to find a way to engage that their members understand and trust.

Investment strategies

Dividend investors, your turn is coming

Dividend payments from listed companies, depended on by many in retirement, have lagged the rebound in share prices over the past year. Better times are ahead but sources of dividends will differ from previous years.

Investment strategies

Four tips to catch the next 10-bagger in early-stage growth

Small cap investors face less mature companies with zero profit that need significant capital for growth. Without years of financial data to rely on, investors must employ creative ways to value companies.

Investment strategies

Investing in Japan: ready for an Olympic revival?

All eyes are on Japan and the opportunity to win for competing athletes. After disappointing investors for many years, Japan is also in focus for its value, diversification and the safe haven status of its currency.

Fixed interest

Five lessons for bond investors from the Virgin collapse

The collapse of Virgin Australia not only hit shareholders, but their bond investors received between 9 and 13 cents in the $1. A widely-diversified portfolio can tolerate losses better than a concentrated one.

Investment strategies

The 60:40 portfolio ... if no longer appropriate, then what is?

The traditional 60/40 portfolio might deliver only 1.5% above inflation in future without diversification benefits. Knowing an asset’s attributes rather than arbitrary definitions is better for investors.

Retirement

Two factors that can transform retirement investing

Retirees want better returns but they have limited appetite to dial up their risk exposure in order to achieve it. Financial advice and protection strategies in portfolios can enhance investment outcomes.

Sponsors

Alliances

© 2021 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. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). 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.

Website Development by Master Publisher.