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

How to enjoy your retirement

Amid thousands of comments, tips include developing interests to keep occupied, planning in advance to have enough money, staying connected with friends and communities ... should you defer retirement or just do it?

Results from our retirement experiences survey

Retirement is a good experience if you plan for it and manage your time, but freedom from money worries is key. Many retirees enjoy managing their money but SMSFs are not for everyone. Each retirement is different.

A tonic for turbulent times: my nine tips for investing

Investing is often portrayed as unapproachably complex. Can it be distilled into nine tips? An economist with 35 years of experience through numerous market cycles and events has given it a shot.

Rival standard for savings and incomes in retirement

A new standard argues the majority of Australians will never achieve the ASFA 'comfortable' level of retirement savings and it amounts to 'fearmongering' by vested interests. If comfortable is aspirational, so be it.

Dalio v Marks is common sense v uncommon sense

Billionaire fund manager standoff: Ray Dalio thinks investing is common sense and markets are simple, while Howard Marks says complex and convoluted 'second-level' thinking is needed for superior returns.

Fear is good if you are not part of the herd

If you feel fear when the market loses its head, you become part of the herd. Develop habits to embrace the fear. Identify the cause, decide if you need to take action and own the result without looking back. 

Latest Updates


The paradox of investment cycles

Now we're captivated by inflation and higher rates but only a year ago, investors were certain of the supremacy of US companies, the benign nature of inflation and the remoteness of tighter monetary policy.


Reporting Season will show cost control and pricing power

Companies have been slow to update guidance and we have yet to see the impact of inflation expectations in earnings and outlooks. Companies need to insulate costs from inflation while enjoying an uptick in revenue.


The early signals for August company earnings

Weaker share prices may have already discounted some bad news, but cost inflation is creating wide divergences inside and across sectors. Early results show some companies are strong enough to resist sector falls.


The compelling 20-year flight of SYD into private hands

In 2002, the share price of the company that became Sydney Airport (SYD) hit 80 cents from the $2 IPO price. After 20 years of astute investment driving revenue increases, it sold to private hands for $8.75 in 2022.

Investment strategies

Ethical investing responding to some short-term challenges

There are significant differences in the sector weightings of an ethical fund versus an index, and while this has caused some short-term headwinds recently, the tailwinds are expected to blow over the long term.

Investment strategies

If you are new to investing, avoid these 10 common mistakes

Many new investors make common mistakes while learning about markets. Losses are inevitable. Newbies should read more and develop a long-term focus while avoiding big mistakes and not aiming to be brilliant.

Investment strategies

RMBS today: rising rate-linked income with capital preservation

Lenders use Residential Mortgage-Backed Securities to finance mortgages and RMBS are available to retail investors through fund structures. They come with many layers of protection beyond movements in house prices. 



© 2022 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.