Managed account business models made simple

Smart practice

Friday 28 July 2017

Should you build your own, buy off the menu or partner with experts?

Managed accounts offer advisers the potential to build efficiency and scalability into their practice; and create richer client relationships by reducing time spent on administration and increasing client engagement and investment control.

In this article, we explore the efficiency and growth opportunities that managed accounts can bring to your business.


Benefits of managed accounts

Financial advisers tell us that managed accounts are helping them increase their value to clients while making their practices more efficient.

As they offer greater transparency and control, managed accounts give your clients a greater understanding of their investment choices, making for a more engaged customer base.

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Reporting and portfolio insights from managed accounts can be far more detailed. When practices have more information at hand, it’s easy to give clients detailed, individually tailored information.

Many practices find client communication changes from being reactive and mainly about administration to being proactive, focusing on engagement, relationship building and potential revenue-generating opportunities.

At the same time, using managed accounts significantly reduces compliance and administration work, such as records of advice and portfolio rebalances, with the potential to bring down costs for both the practice and its clients.  Advisers also have more time to build client relationships, understanding their needs and addressing their strategic issues.

How best to implement managed accounts within your practice depends on your strategic goals as a practice and your internal capabilities and resources. Below are options commonly available when using a Separately Managed Accounts (SMAs) structure.


1. Buy a model

Advisers who use external investment management may wish to add existing SMAs to their investment portfolios. You can choose an SMA off a menu and purchase just as you would a managed fund. For example, Macquarie’s current SMA menu consists of more than 20 managers offering over 75 models, supporting multiple asset classes including Australian equities, managed funds and ETFs.

Buying an SMA has many advantages:

  • speed to market – once the decision is made, and the SMA has been added to the practice APL and initial advice provided, then you can buy an SMA straight away
  • low cost – no development costs at all
  • low complexity – easy and simple, no requirement to be the investment expert
  • credibility – of using a professional manager.
Many practices find client communication stops being about admin and instead focuses on revenue-generating marketing and education.


2. Partner with an investment manager

Because many advisers are drawn to the bespoke nature of managed accounts, some feel that buying an off-the-shelf solution is not a viable option.

In this case, they often opt for a customised solution delivered by a credible investment manager delivered via an SMA structure. In this type of partnering scenario, advisers work with an expert, e.g. a research house or an independent investment consultant, to customise their own models.

The result is a model that you have had input into, created with relatively quick speed to market and limited paperwork, with the investment professional taking the brunt of the due diligence load as well as ongoing management.

The downsides are the upfront cost involved in using your partner’s IP and the time involved in working out your strategy with them.


3. Build your own

Some practices choose to retain complete control and build a model from scratch using their intellectual property (IP) that is then delivered via an SMA structure. This is a great option in terms of flexibility, because you can shift strategies and change the underlying portfolio. By virtue of being unique to your brand, models developed in-house can also be valuable differentiators.

As you are the investment manager, the downside of this approach is the time, cost and effort required to maintain a documented investment and research process; and build and maintain a model. If you don’t already have an investment committee in place and a proven investment framework and process, this approach is less likely to be a viable option for your practice and could take longer to set-up. You also need to be prepared for the set-up costs as well as upfront and ongoing due diligence requirements on the investment models and process.

In the end, the decision comes down to a balance between the time and investment you’re prepared to put in upfront – and the level of expertise, capability and control you need.

Whichever option you choose, you’ll still gain valuable benefits from the practice efficiencies and increased client engagement that come from managed accounts.

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Unless stated otherwise, this information has been prepared by Macquarie Bank Limited ABN 46 008 583 542 AFSL and Australian Credit Licence 237502 and does not take into account your client’s objectives, financial situation or needs. 

This information is provided for the use of licensed and accredited brokers and financial advisers only. In no circumstances is it to be used by a potential client for the purposes of making a decision about a financial product or class of products.