Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 263

Four drivers of growth in managed accounts

Since 2004, when ASIC promulgated the Managed Discretionary Accounts (MDA) Class Order, managed accounts were set to be the next big thing.

Over the past three or four years that promise has started to come to fruition. Approximately $60 billion is now invested in various forms of separately managed accounts (SMAs) and MDAs. These two forms of managed accounts have developed in tandem and represent differing perspectives on the benefits which managed accounts offer, and who will be best placed to take advantage of those benefits.

What are SMAs and MDAs?

Think of managed accounts as ‘Implemented Advice’ – the service an investor client would receive from an adviser if they were the adviser’s only client, and the adviser had the skills of an experienced investment manager across all asset classes.

SMAs generally have a legal structure of registered managed investment schemes. They have been developed by the platform industry as a way of assisting advice firms to deliver the promise of implemented advice. They offer the benefit that the platform takes charge of technology and operations, and often provides a menu of investment managers, just like the traditional managed fund menu. But they suffer from the disadvantage that they are platform-specific and are fundamentally a financial product.

MDAs are set up under their own set of regulations. They are much more commonly provided directly by advisory firms. There are over 200 AFSLs with MDA Provider authorisations. But the issue is that the MDA Provider is responsible for providing or outsourcing all facets of the service from administration and operations to investment management.

Growth in managed accounts of both types has been running at around 40% per year. However, a number of commentators are questioning whether this can continue in a post-Royal-Commission world.

Four drivers of growth in SMAs and MDAs

Growth in SMAs and MDAs has been driven by several factors, including:

  • An attempt to achieve greater practice efficiency among advisers.
  • A desire by advisers to deliver better, more precise client outcomes.
  • Technology developments that have enabled the systematic, model-based management of many portfolios.
  • A strategic trend for advice businesses to move towards wealth management, with different pricing models.

If the last of these clashes with regulatory change, will the other three drivers be derailed?

All forms of managed accounts are subject to the existing FOFA regulations relating to conflicted remuneration, just like any other financial product. Indeed, as mentioned above, SMAs are generally registered managed investment schemes and are subject to identical restrictions to those which apply to unit trusts.

How might a tighter regulatory regime impact the key drivers of growth described above?

1. Practice efficiency

Whether an advice business (AFSL holder) obtains revenue from their managed account service or not, the efficiency gains are substantial. Advisers will seek improvement in their office efficiency, and, if anything, this drive will accelerate as advice firms look to control costs more firmly than in the past.

2. Better client outcomes

Managed account structures, particularly multi-asset class models, recognise that client outcomes will be improved in several ways:

  • Efficient implementation of tactical changes.
  • Client portfolios receive continuous review, rather than annual ad hoc review. This makes advice fees easier to validate.
  • Use of listed investments that was previously seen as impractical by many advisers. Generally, this has meant a lower cost of investment.
  • Establishment of central investment teams, with an increase in the level of experience and skill applied to portfolios.
  • Other cost reductions, particularly in fund manager MERs and often platform costs. The benefit of this flows directly to the client.

Taken in aggregate, these factors lead to better client investment outcomes. None of these issues is likely to be reduced in their impact by regulatory change.

3. Technology advancements

One of the impediments to the adoption of managed accounts was the inability to implement them on major platforms. Every one of the large platforms is now well advanced in implementing this capability and a number of fintechs are offering implementation which makes it feasible to manage many portfolios concurrently. Again, no likely regulatory change will cause these developments to be withdrawn.

4. Charging for portfolio management services

The development of more rigorous portfolio management capability either with internal investment capability or through the use of external consultants or directly contracted investment managers, comes at a cost. Advice groups either absorb this cost or legitimately levy a portfolio management fee on clients to cover it.

For the groups who absorb it as a cost of achieving the benefits outlined above, any regulation change will likely be a matter of indifference. For groups that recover these costs, there are well established client consent processes they can apply.

So, without wishing to seem like a Pollyanna, we don’t think there will be a material negative impact on the trend to migrate significant existing advised assets into managed account structures.


Toby Potter is Chair of IMAP (the Institute of Managed Account Professionals), an organisation whose mission is education, information and representation of managed account professionals.



Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Latest Updates


$1 billion and counting: how consultants maximise fees

Despite cutbacks in public service staff, we are spending over a billion dollars a year with five consulting firms. There is little public scrutiny on the value for money. How do consultants decide what to charge?

Investment strategies

Two strong themes and companies that will benefit

There are reasons to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies should benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Financial planning

Reducing the $5,300 upfront cost of financial advice

Many financial advisers have left the industry because it costs more to produce advice than is charged as an up-front fee. Advisers are valued by those who use them while the unadvised don’t see the need to pay.


Many people misunderstand what life expectancy means

Life expectancy numbers are often interpreted as the likely maximum age of a person but that is incorrect. Here are three reasons why the odds are in favor of people outliving life expectancy estimates.

Investment strategies

Slowing global trade not the threat investors fear

Investors ask whether global supply chains were stretched too far and too complex, and following COVID, is globalisation dead? New research suggests the impact on investment returns will not be as great as feared.

Investment strategies

Wealth doesn’t equal wisdom for 'sophisticated' investors

'Sophisticated' investors can be offered securities without the usual disclosure requirements given to everyday investors, but far more people now qualify than was ever intended. Many are far from sophisticated.

Investment strategies

Is the golden era for active fund managers ending?

Most active fund managers are the beneficiaries of a confluence of favourable events. As future strong returns look challenging, passive is rising and new investors do their own thing, a golden age may be closing.



© 2021 Morningstar, Inc. All rights reserved.

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.