The current dynamics of the managed accounts market and its projected growth present an unique opportunity to incorporate personalisation into investment. Technology will play a crucial role in driving this transformation, enabling scalable and efficient portfolio and investment management customisation.
Recently, Andy Robertson from Chelmer was joined by Toby Potter from Philo Capital Advisers, to present a webinar for the Australian Stockbrokers and Investment Advisers Association. Moderated by Leanne Bradley from Suite2Go, the webinar, Revolutionising managed accounts: Insights from industry leaders, explored the advantages of managed accounts and how technology is addressing common challenges. Read on for some of the highlights and key questions from peers from the webinar.
Q. Is the use of managed accounts growing?
Toby Potter from Philo Capital Advisers says managed accounts are one area of the advice environment which has received increased focus as its part in the retail financial service sector grows significantly. “Managed accounts came about because advisers wanted to be able to provide more efficient services and, more importantly, wanted to provide better services to retail and wholesale investors.”
Separately managed accounts (SMAs), individually managed accounts (IMAs) and managed discretionary accounts (MDAs) are all managed investment accounts with some similarities. SMAs are financial products, while IMAs and MDAs are classified as financial services.
The latest managed account census data released this month by the Institute of Managed Account Professionals and Milliman show managed accounts funds under management (FUM) was $232.77 billion as of December 2024, up 23.2% from $188.85 billion the year before. Of that, SMAs maintain a 64% market share or $148 billion (an increase of 36% year-on-year) and MDAs account for 25% of total assets or $58.3 billion (a 5% increase year-on-year).
Overall, we’re seeing a sustained increase in funds under management. “The growth rate for the last eight years or so is 27%, demonstrating that the managed account market is a very significant part of retail financials services and of advice in general,” states Toby.
“There is no doubt that the managed accounts sector is delivering to those investors,” says Andy.
Leanne Bradley from Suite2Go says that while SMAs have probably dominated the growth in the managed accounts market to date, there’s certainly a lot more talk about the personalisation end of the spectrum. “You only need to look at the way wealth groups are segmenting their clients into these different buckets where they require a portfolio that’s tailored to their needs or something a bit more sophisticated,” she says.
That’s echoed by Toby, who says that if we look specifically at MDAs, each MDA arrangement between the client and the provider is unique. “It’s not like a registered scheme or a separately managed account where everybody’s in a single product,” explains Toby. “Each client, even if they’re managed in accordance with the same model, has a unique relationship. That gives rise to some really significant differences in the opportunities that MDAs provide, driven largely by a technology approach.”
Q. What does this managed account industry mean for the evolution of operating models for wealth managers?
The evidence is clear, technology is constantly changing, transforming the investment industry as a whole. If you look at the last 25 years of stockbroking, there have been a number of themes that show how service models have evolved. Andy Robertson from Chelmer says part of this is a move away from high touch, manual activity as more digitisation and technology has become available enabling client led service models, but it also coincided with a change from transaction based services to portfolio focused services.
“About 25 years ago we saw the introduction of investor-led investing, although back then it was known as internet broking. This online B2C type business started to provide a mechanism where you, as an investor, could choose a basket or bundle or theme of assets. More recently, maybe five years ago, it was this whole idea of Robo where effectively you were given a target asset allocation and it became more about investing to get the target asset allocation,” Andy explains.
If we look at more traditional advice giving businesses, traditional metrics were based on how high you could get the adviser to client ratio. “Of course, you could drive that number higher, but it came at the expense of effectively standardising the client portfolio. If an adviser just put everyone into a SMA they will be able to have a much higher ratio than if they had a lot of personalised portfolios,” he says. “An efficient business was one where both the adviser to client ratio count and amount of personalisation were both increasing. Ultimately, sooner or later, the ratio and personalisation plateau as the limiting factor is the nature of the advice business model and the adviser themselves.”
The discretionary type service model can achieve a higher starting ratio and the ability to increase that and the personalisation well in excess of the traditional advisory model. “For the business metrics, the ratio patterns still apply, it’s just that you should be able to extend your adviser to client ratio and actually be able to support a far greater amount of personalisation in the portfolio services you are offering,” says Andy. The ratio of model portfolios (targets) to personalised portfolios is an additional business metric that should be used in discretionary models. For example, a 1-to-1 ratio is a poor efficiency metric typically because of poor technology.
Historically, one of the challenges in straight advice-led businesses was whether the technology that was available gave full visibility of client portfolios. If you look at how the market has evolved, it’s more tailored or bespoke with automated, diversified and client-centric investment strategies. It’s technology that’s enabled us to create that scale within advice businesses.
One thing is certain, you can’t have personalisation at scale without technology. – Leanne Bradley, Suite2Go
Andy points out that this doesn’t mean that business models are completely evolving this way, it’s just that there are more service offerings and people are using more technology to do what they were doing before. “Think of it as segmentation of best practice.”
“A key takeaway for me is that MDAs globally don’t look like a cookie cutter solution. Your client segmentation might drive out different service models but still within the discretionary service wrapper. For example, for lower value portfolios there’s potentially more automation and less customisation. As you get further into the high net worth clients, there is more manual tailoring,” Andy says.
Q. So if the key opportunity is personalisation at scale, how do I allow each of my clients to be treated as an individual and get exactly the right target asset allocation for them?
There are advantages to wealth managers and advisers in being able to offer these types of discretionary service structures to their operating models and business. These include enhanced flexibility in delivering more efficient solutions, professional portfolio management, more effective oversight of diversified investments, and for clients, exposure to various asset classes.
To start providing discretionary account services, there are a couple of key additional technology or data elements that are needed that may not have existed in an advisory or traditional broking service model.
“You’re looking for technology to capture data for the portfolio target or model portfolio, not just at the top level asset allocation to asset classes but all the way down to the individual asset weightings themselves,” says Andy. This, when combined with the actual portfolio holdings provides the mechanism to rebalance. The business process shifts from changing portfolios (orders) to changing models (targets).
Rebalancing is just mass order generation, but you can only achieve it if you have the target asset allocation at individual asset weights and the current state of the portfolio taking into account existing orders. At its simplest implementation, rebalancing automates the adviser manually entering a lot of orders which can be done over a long period of time. “Rebalancing in some service models may still be performed by an adviser or portfolio manager, and may allow for varying from the targets, but other business models may have the rebalancing being done by automated technology as a background process,” he explains.
In addition to portfolio targets, the technology will need to hold compliance related investment data. “Some of this may be organisation policy, some may be organisation profile settings, and some will be individual client personalisation. These are typically a combination of ‘must haves’, including asset type, sector etc ranges, but also the ‘must not’s’, for example cannot hold certain asset classes or assets. Good technology will validate that changes in the portfolio models and targets conform with the compliance data before they come into effect, and that orders generated at the rebalance stage also conform with the compliance data.”
Personalisation is a key benefit of good efficient wealth management technology used in a discretionary service, but it also offers standardisation where it’s important. – Any Robertson, Chelmer
Gone are the problems of manually placing orders in all portfolios to sell an asset that needs urgently removing from a portfolio and the inequality in execution that causes because of timing, or not being able to reach clients to make a decision on an elective corporate action. “Portfolio implementation and execution become standardised services,” says Andy.
Generally speaking, if the technology has been done well and is a good discretionary platform, it will have all the data and elements of a traditional broking or advice technology platform, but with the additional functionality that allows you to concurrently provide a SMA or MDA type service model.
Toby agrees, sharing that Philo are using the model to accommodate client specific circumstances enabling them to offer personalisation of portfolios based on a systemic portfolio construction process. “Whether that’s internal or external, what the client experiences is a very real service offer from their personal adviser, but everyone is doing the thing they’re equipped to do.”
You can find further information about how Myriad by Chelmer can enable you to establish or expand your managed account offering and do more with greater efficiency here.