Managed accounts come with high expectations. They promise to transform the way investment portfolios are managed, with a myriad of benefits cascading between advisers and clients. Licensees will reap the time saving efficiency gains, investors will get immediate and equitable portfolio action that should improve performance. Both sides get less paperwork. Other benefits follow, including the holy grail of having a managed account cake and eating it too with potentially lower fees to the client — but more on that later.
Without doubt there is a mass migration going on towards managed accounts. The industry reached $50 billion by 2017, with 20% growth predicted this year. That's a stunning growth rate.
But it hasn’t been all smooth sailing. Despite an impressive growth trajectory, managed accounts are still not widely understood or widely used by practices. Confusion remains about basic concepts such as what they are and how they benefit both advisers and investors.
Most advice practices are familiar with the concept and use of model paper portfolios. A managed account takes this concept one step further. It collates the different investments and manages it like a single fund, under the stewardship of a model manager (like Zenith) that works collaboratively with the adviser and the chosen platform. Key functions like portfolio changes and reporting are undertaken by the model manager, freeing up time for advisers to focus on other value adding functions.
John Nicoll, National Sales Manager at Zenith, says the key to long term success of managed accounts hinges on meeting two criteria: it must deliver real business efficiency gains to the practice and it must provide tangible benefits in the hands of the investor. “Our feedback from practice clients going down the path of managed accounts is overwhelmingly positive on both counts and they haven't looked back."
John adds “Moving to managed accounts is not a simple portfolio decision. We first explore with our clients their own business objectives and how that relates to client outcomes in a managed account world. We then dig deeper and consider whether a managed account will work as a holistic one-stop solution for the practice or blended with other assets clients may hold such as property or self-managed equities."
And that's just where the soul-searching for practices begins. The next step involves choice of platform. This is a critical step as each platform treats managed accounts differently and that can affect things like operations, flexibility, rebate potential and portfolio options.
For clients investing in Zenith’s house range of managed accounts ‘Elite Blends’ on Netwealth or BT Panorama, that’s where most of the difficult decisions end. Advisers will get access to platform-ready portfolios with Zenith’s best mix of fund managers, with a reporting pack that showcases the research clout backing the managed account.
But for clients seeking to excel in the space and create their own distinguished offering – and that cohort is growing – there are many more steps to consider such as creating the right investment governance structure for that business to maximise success. This is where Zenith’s most experienced consulting hands are called into the action.
Amongst a proven team of highly experienced investment consultants, David Wright, Managing Partner and co-founder of Zenith, actively works with clients to build customised offerings. “When we build a bespoke managed account we’re effectively setting up a Managed Investment Scheme for the practice that mirrors the regulatory regime of all managed funds in Australia. That means more steps and due diligence to set up, but the rewards are a unique offering that matches the needs of the licensee, a high payload of reporting and a layer of compliance and protection that traditional model portfolio arrangements cannot provide.”
While there are many considerations when it comes to managed accounts, at the heart of the enterprise will be net performance for investors. Pleasingly, Zenith’s Elite Blends which began in 2009 are delivering excellent risk-adjusted returns that back the whole premise of a move to managed accounts. As shown below, Zenith Elite Blends Growth Model Portfolio (in which the managed account is based) has delivered a five-year net return above many competitors with lower volatility risk, as at December 2017. It’s a compelling set of numbers that when shown on the frontline should help advisers give comfort for investors moving across to Zenith’s Elite Blends.
Managed accounts provide all-round benefits, so the question of who benefits most is somewhat moot as the advantages differ between advisers and their clients.
As part of its adviser managed accounts collateral, Zenith has compiled a full list of benefits that is available to help its advice clients discuss managed accounts with their clients. Below is a take out of the top three benefits for practices and clients.
Higher performance potential
Managed accounts operate as a Managed Investments Scheme and the model manager acts on your behalf through a Responsible Entity. The ability to execute a trade immediately to remove an investment if required also reduces risk to the adviser.
Instant portfolio changes provide exposure to the best investments, maximising performance potential and reducing the risk and lag in being in an underperforming investment
Save business time
Automated portfolio management allows you to spend more time building your business and client relationships.
Your portfolio will be professionally managed by a managed accounts specialist, the model manager, who can focus on researching all available investments, while building and updating your portfolio
All client portfolios treated equally
All client portfolios are updated simultaneously by the model manager, so there is no time lag updating individual client portfolios. Creates a similar investment experiences for all clients in the same portfolio and risk profile.
With reporting you can see where your money is invested right down to the individual asset level, and see what changes have been made on your behalf
The implication for fees is one of the most common questions received by Zenith regarding managed accounts. Unfortunately, there is no silver bullet example or guarantee that fees will be lower, for an equivalent portfolio.
Zenith’s position is that managed accounts can deliver cost competitive portfolios with the end fee outcome depending on several factors. These include: the funds in the portfolio (eg. are cost-effective institutional classes of units available from a fund manager?), choice of platform and their capacity to deal with rebates, as well as the rebate policy of funds within the portfolio.
That said, there are opportunities to create more cost-effective customised managed accounts that meet the fee constraints set by licensees, and this is achieved through Zenith’s consulting service.
In essence Zenith continue to promote the importance of looking at fees in the context of gross risk adjusted returns comparisons to demonstrate a clearer view assessment
Moving to managed accounts represents a big step for any advice practice with considerable trust placed in the capabilities of the model manager and platform. Zenith has worked with over 40 advice practices nationally and has level of experience (both with relationship management, guidance and consulting) that few others can match, with deep inhouse research resources and a high level of leadership stability in the organisation. Zenith believes this helps make it the partner of choice and helps drive the success of its clients seeking to embark on managed accounts.
Call Zenith today to discuss how you can take the next step towards managed accounts.