The market for advice has moved. The landscape of financial advice in Australia has, and continues to, go through significant transformation in the wake of the Hayne Royal Commission. With the number of advisers shrinking to around 15,000 — and further contraction likely — the market has become more fragmented and is prompting advisers to rethink the type of service they should provide, contributing to a rise in the use of managed accounts. There’s widespread discussion in the industry about the challenges in providing advice to everyday “Mum and Dad” investors that haven’t been part of the managed account market, previously the realms of the upper, middle and high-net-worth client base. This gap in the mass market looks most likely to be met by innovative digital solutions.
The growth of managed accounts
The burgeoning growth of managed accounts in the Australian market highlights their increasing allure for both financial advisers and investors, stemming largely from the enhanced flexibility they offer advisers in delivering more efficient solutions for their clients. Managed accounts provide the dual advantages of professional portfolio management and more effective oversight of diversified investments. For clients, the key benefits of managed accounts typically include performance, access through their primary investment platform, the asset manager’s reputation, and exposure to various asset classes.
You only need to look at the latest Funds Under Management (FUM) Census of Managed Accounts released recently by IMAP and Milliman to see evidence of this growth. As at 30 June 2024, FUM in managed accounts is over $200 billion, that’s an increase of 43.9 billion (or 27%) compared to the previous corresponding period. It’s interesting to note that, the bulk of FUM, $129 billion, are in separately managed accounts (SMAs), while managed discretionary accounts (MDAs) and other services hold $52.4 billion and $24.2 billion respectively.. SMAs, individually managed accounts (IMAs) and MDAs are all managed investment vehicles with some similarities. SMAs are financial products, while IMAs and MDAs are generally regarded as services.
While the recent growth of managed accounts has been significant, it’s worth noting that they don’t dominate the overall business portfolio of many advisers, yet. The recent Chelmer Wealth Management Report, which reflects the survey results from delegates at the 2023 SIAA conference along with findings from Suite2Go’s Wealth Report research in 2021, highlights that, despite the growth, most respondents had less than 25% of their total FUM in managed accounts, with a significant proportion having less than 10%. Equities were the most commonly managed account asset type and also the first type of SMAs available on platforms, followed by multi-asset strategies using underlying funds, then fixed income. This suggests there’s still considerable room for growth as more advisers and clients recognise the benefits of this investment approach.
Selecting the right technology platform for managed accounts
As the managed account market continues to grow, technology is playing a pivotal role in enabling advisers to expand their managed account offering and do more with greater efficiency. By streamlining operations and improving efficiency, advisers are able to focus on managing their client’s needs while automating portfolio administration and reporting.
There are a range of technologies in the market, with options ranging from global SaaS providers to custom-in house solutions, offering an equally wide range of functionality, performance and user satisfaction. While there’s no one-size-fits-all approach, the ability to scale operations, while accommodating personalised preferences, underscores the increasing demand for these platforms. The Chelmer Wealth Management Report found the successful managed account providers all focus on two things:
- Customer centricity: The ability to create greater visibility through strong front end client portals, reporting, and portfolio modelling empower both advisers and their clients with on-demand access to portfolio information. This tailored approach not only improves transparency but also enhances client engagement and satisfaction, enabling advisers to retain existing clients and attract new ones.
- Modular and scalable platforms: Offering a complete front to back office solution provides the flexibility needed to adapt to changing market conditions and client needs.
Technology enables advisers to offer a MDA service
While the expansive use of SMAs as a vehicle to service the adviser market has driven FUM growth, a key part of the attraction of MDAs is the flexibility they offer to advisers to provide more service-like offerings to their advice clients than are generally available from platform-based SMAs. But, there wouldn’t be the capacity to provide that level of service without sophisticated technology.
There’s no question there are a significant number of technology providers with portfolio management technology, but for many MDAs, what they want isn’t widely available in the market.
Chelmer’s specialist wealth management technology, Myriad, presents a significant opportunity to utilise the flexibility that MDAs offer. Myriad allows advisers to differentiate the service and customisation capabilities of MDAs from the “one-size-fits-all” product characteristics of so many SMAs. Often private wealth clients expect their adviser to be able to support all investment types, multiple tax structures, and custody, HIN or offshore assets, and MDA services make managing this practical and scalable. To bring such a service to the market requires complexity to be enhanced with as much technology-enabled integration as possible to make it effective and efficient.