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.

 

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

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.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

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.

Latest Updates

Investment strategies

Trump's US dollar assault is fuelling CBA's rise

Australian-based investors have been perplexed by the steep rise in CBA's share price But it's becoming clear that US funds are buying into our largest bank as a hedge against potential QE and further falls in the US dollar.

Investment strategies

With markets near record highs, here's what you should do with your portfolio

Markets have weathered geopolitical turmoil, hitting near record highs. Investors face tough decisions on valuations, asset concentration, and strategic portfolio rebalancing for risk control and future returns.

Property

Soaring house prices may be locking people into marriages

Soaring house prices are deepening Australia's cost of living crisis - and possibly distorting marriage decisions. New research links unexpected price changes to whether couples separate or silently struggle together.

Investment strategies

Google is facing 'the innovator's dilemma'

Artificial intelligence is forcing Google to rethink search - and its future. As usage shifts and rivals close in, will it adapt in time, or become a cautionary tale of disrupted disruptors?

Investment strategies

Study supports what many suspected about passive investing

The surge in passive investing doesn’t just mirror the market—it shapes it, often amplifying the rise of the largest firms and creating new risks and opportunities. For investors, understanding these effects is essential.

Property

Should we dump stamp duties for land taxes?

Economists have long flagged the idea of swapping property taxes for land taxes for fairness and equity reasons. This looks at why what seems fairer may not deliver the outcomes that we expect.

Investing

Being human means being a bad investor

Many of the behaviours that have made humans such a successful species also make it difficult for us to be good, long-term investors. The key to better decision making is to understand what makes us human and adapt.

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.