According to a recent report from Morgan Stanley, the managed accounts industry is tipped to hit $60 billion by 2020.
It’s a landmark opportunity for managed account and managed discretionary account (MDA) operators, and financial advisers; however, it’s also a challenge for an industry weighed down by inefficient technology and processes.
Even the technologies that are purported to reduce the administrative burden of managed accounts only deal with one or two parts of the equation.
This leaves advisers moving back and forth between several tools or systems to complete portfolio construction, rebalancing, compliance, reporting and administration tasks.
Both the cost and effort of providing managed account services is high in this scenario, making it difficult for advisers to provide the tailored advice that clients expect.
The challenge to deliver tailored advice at scale
The delivery of tailored advice takes up a lion’s share of the time and cost spent on administering and managing client portfolios, so to do this at scale poses a significant challenge for advisers.
First, they must weigh up whether or not the costs of scaling are worth the new income to be gained.
To date, technology alone has failed to enable true scaled advice and so advisers are often forced to invest in a combination of people and technology to scale their business even slightly.
While it may be worthwhile in some instances, this approach makes it difficult for adviser firms to grow quickly, and squeezes profit margins.
It also fails to resolve the current inefficiencies in the advice process, including the rebalancing of individual client portfolios.
This is still a largely manual task which can take weeks for an adviser. As a result, some of the portfolios at the end of the queue may miss out on some of the intended benefits of the rebalancing in the first place.
Using big data to build trust with clients
Communicating portfolio performance to clients is a vital part of the client/adviser relationship, yet tools to make this process easy are scarce.
An adviser’s time is not well spent gathering performance metrics one by one and updating charts manually; such inefficient processes not only waste time but result in clients getting performance data less frequently than may be ideal.
In a world where data is so abundant, it makes sense that tools should be available to allow advisers to show clients exactly how their investments are performing in real time, relative to benchmarks or against other metrics.
Advisers should be able to log in as easily as they can do online banking, for example, and instantly see the performance of each security that makes up a portfolio, along with the overall performance of the investment as a whole.
Being able to see the performance of an ETF basket relative to the index it replicates, for example, gives advisers the power to see in granular detail which products are performing as intended, which are doing better, and any areas that may be underperforming.
Doing this analysis product-by-product is unrealistically time consuming, yet the benefits of having this insight are obvious.
Having performance data instantly available in real time, and laid out in a way that’s visually appealing and easy to understand, not only gives advisers more power over performance, but also a much stronger platform on which to base discussions with clients and demonstrate the value that they bring to the table.
The need for a more integrated technology-based approach
The only way for the industry to achieve true scale is to finally rid itself of the manual process steps which do not add value but that still remain, while also applying more sophisticated technology to make the construction and management of portfolios more efficient.
Experience has also shown that it’s simply not good enough to have one system that automates administration and then another for execution.
Advisers need a system that automates the complete workflow of advice through to the execution of client trades.
That’s certainly what I’ve heard from the industry as MA Operator has sought input from advisers on what they need in order to scale and grow their business.
It’s also what we’ve endeavoured to bring to market though we continue to solicit feedback on what other parts of the managed accounts industry need to be automated and streamlined.
If we and other fintechs can remove these pain points then the industry as a whole can focus on improving portfolio management and performance and delivering more value to clients; it also opens the door to increased innovation.
Shannon Bernasconi is the executive director and co-founder of MA Operator
