Eylem Kamerakkas
Head of Managed Accounts Product, Macquarie Wealth Management

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.

Staying on course with SMAs video: Richard Batten and Andrew Bradley

 

Passing on rebates

Transparent fee disclosure is another critical area of compliance. Any fund manager rebates need to be passed on in full to the client. Minter Ellison noted this as a baseline FOFA requirement and also noted the relevance of revised RG97 disclosure requirements, with the full suite of changes enforced from 2021. The primary focus of both initiatives is the delivery of better fee and cost transparency, comparability and ultimately increased access and confidence in the advice and product acquisition process for investors.

At Macquarie, we have seen a growing focus on rebates over the past few months, as fund managers, investment consultants and advisers have become more conscious of the “total costs to client” consideration. Around 45 per cent of Macquarie’s SMAs hold managed funds, and of those almost 50 per cent pay a rebate. Those rebates are paid in full to the client, helping to keep costs down and ensure they reap the full benefit of the cost saving. While some managed account providers and platforms are electing to charge for the provision of the fund rebate service, at Macquarie we’re continuing to facilitate this service at no cost to the fund manager, investment consultant, adviser or client. Ultimately, our focus continues to be on bringing clients and advisers closer together, removing any undue friction so we can help them thrive in an ever-changing environment.

In response to the ‘added costs’ of offering a rebate payment, some fund managers may elect to either remove the rebate altogether or look to pass on this ‘cost saving’ by issuing a different class of units.

Design and distribution obligations will add another compliance dimension. These have been delayed to September 2021 but will require issuers and distributors to make a clear determination about whether a product is fit for purpose for a defined target market.

What’s next for managed accounts?

We are launching new SMAs every month on Macquarie Wrap platform. They continue to represent a growing opportunity for advisers seeking greater diversification, streamlined business processes, and the ability to tailor products within a client portfolio. While there is certainly no one size fits all, managed accounts can be appropriate for different clients in different ways – even proving to be very effective as a ‘core-satellite’ strategy, providing a central hub of diversified holdings. These can be surrounded by other holdings which may require separate management for tax purposes.

This managed account core can also be customised to ensure alignment with ESG (environmental, social and governance) goals of the client. So, for advisers, there is potential for significant efficiency gains when a portion of the client’s portfolio is being looked after within a managed account structure.

Macquarie is also continuing to invest in digital transformation within its platform. This is a multi-year project, but the first phase has already realised significant automation and efficiency gains: for instance, trades can be processed and accounts re-balanced in a fraction of the time. These efficiency and automation gains are seamlessly passed onto advisers and clients alike to ensure they equally reap the benefits, an initiative that has proven to be invaluable with the recent market volatility. The stability and consistency of service levels has been particularly imperative for the confidence equation.

The SMA opportunity

Managed accounts continue to be a strategic focus for Macquarie - we can see their potential for clients of all balances. At its core, we keep our managed accounts solution simple, transparent and flexible.  We have a deep understanding of the wealth and asset management industry and this helps us better understand our clients and ensure we deliver solution that are ‘client driven’.  We’re always looking for ways we can empower advisers so they can better address the needs of their clients to achieve their financial as well as personal goals.

Perhaps most relevant for fund managers, if you aren’t already in this space, you may be missing out. It’s an ideal complimentary offering for fund managers, leveraging institution grade capability adjacent to their existing funds. And it can be a business-changing resource for advisers, supporting their shift to more client-centric solutions. Ultimately, these things combined can equate to client benefits and sustainable long-term outcomes.

Learn more about managed accounts with Macquarie

Additional information

1

IMAP Milliman Managed Account FUM Census as at 31 December 2019.

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