Managed accounts are increasingly being used by advisers as they provide choice and flexibility for their clients, and compliance-friendly ways for them to access optimal service providers, platforms and investment expertise.
The managed accounts market has matured in Australia – advisers can now consider independent ratings when evaluating options, for example. But there is still further potential for growth. And that’s an opportunity fund managers and advisers are paying close attention to.
In our recent virtual round table forum for Macquarie Wrap advisers and fund managers, we discussed the key issues surrounding managed accounts today, and the emerging trends we are seeing in the market. With increasing scrutiny from regulators, it has never been more important to consider best duty requirements and fee transparency. An active management approach in recent time is also proving to be key for fund managers seeking to extend their offering to incorporate managed accounts, with a trend towards combining both active and passive strategies in a complementary manner.
Bringing a legal perspective to the event, Minter Ellison Financial Services Partner Richard Batten described managed accounts as “useful structures that can enable better outcomes for investors and advisers, while also helping them meet regulatory requirements.”
These ‘better outcomes’ can include tax advantages, the ability to personalise investments, and the agility to react quickly to market changes.
“They also enable advisers to tap into specialist investment expertise – to go above and beyond the knowledge any single adviser would be expected to have,” noted Batten.
“We see managed accounts as providing a really valuable addition to the types of solutions available to advisers, and we also see an increasing demand for them – both on the adviser's and on the client's side,” he added.
The rise of managed accounts
At Macquarie, we are also seeing increased demand for these accounts – and more specifically, for Separately Managed Accounts (SMAs). Since 2018, the Australian managed accounts industry FUM has grown by over 60 per cent to $79.29billion. During the same period, Macquarie’s managed accounts FUM grew by more than double that rate, and now stands at over $4.7billion1.
One-third of all flows into Macquarie Wrap platform are now directed into managed accounts, and we expect that to increase to 50 per cent within the next couple of years.
Given the current environment, it’s not all that surprising to see diversified multi-asset models attracting the most interest. But like all things, this opportunity needs to be coupled with patience around FUM flows and volumes. Managed accounts are not an automatic ‘build it, and flows will come’ solution. Advisers need support as they roll out managed accounts. It’s a significant change to their approach and mindset, and the right support can help them start to realise the significant efficiency gains they can make in their practice more quickly. Equally there is an important role for fund managers, investment consultant and practice heads alike to support advisers through the transition,
Ensuring best interest obligations are met
Andrew Bradley, a Financial Services Partner with Minter Ellison, explained that in recent time, particularly since the introduction of the FASEA Code of Ethics on 1 January 2020, the best interest duty has come under the spotlight for fund managers and advisers. Under the FASEA code of ethics, advisers have an obligation to fully research all solutions and show a good basis for recommendations. “That obligation means advisers should not be closing their eyes to good solutions that are out there. And depending on the nature of the client, they should consider whether managed account solutions might assist the adviser to meet a particular client’s needs and help them achieve their financial goals,” noted Bradley.
In the opening discussions at the round table, independent ratings agency SQM explained the importance of managing potential conflicts of interest by engaging research consultants who are not tied to their own funds.
Rob Da Silva, SQM’s Head of Research, described his firm’s approach to assessing managed account ratings and benchmarks. “Performance is important but other elements can be critical in determining the long-term outcome,” he said. These other elements include philosophy and process, experience, governance, product features, and portfolio construction.