Managed accounts are set to boom as legislation forces dealer groups to change business models and clients demand more transparency and better after-tax results on their investments, according to industry leaders.
Institute of Managed Account Providers chairman Toby Potter said the government’s Future of Financial Advice reforms were “fertile ground” for managed accounts and would drive sustained growth in the sector.
“We see dealer groups rethinking their business model and increasingly we will see them adopting a managed account relationship with their client, as a way of completely stepping out of the rebate/commissions problem and yet maintaining margins equivalent to their current margins,” Potter said.
Many dealer groups would resort to developing their own in-house model portfolios and offering them to clients via managed accounts in order to retain margin amid a fee-for-service environment, he said.
Praemium chief executive Arthur Naoumidis said the elimination of trailing commissions would force dealer groups to go down the managed accounts route.
Naoumidis said managed accounts would boom similarly to how platforms did in the 1990s.
Boutique financial planning company Henderson Maxwell recently shifted $100 million from traditional platforms into Sydney-based firm Investment Administration Services’ (IAS) managed account service.
The move allowed Henderson Maxwell to custom design portfolios made up of Australian-listed securities, hybrids and term deposits within a managed account structure.
Henderson Maxwell controls investment decisions for clients using an in-house portfolio management committee made up of six advisers and two external members.
The firm plans to move another $130 million to IAS’s managed account service from various platforms over the next 18 months.
Hub24 managing director Darren Pettiona said fiduciary duty responsibility had the potential to make a big impact on the growth of managed accounts.
“If I put my clients in a unitised strategy when a non-unitised one is available at less cost and with all the tax benefits, would I be breaching my fiduciary responsibility to that client? And we won’t know, but someone will test it,” Pettiona said.
