A quick guide to managed accounts

Many clients like the idea of having an investment account that is overseen by a professional investment manager and can be managed without having to be involved in every portfolio decision.

Managed accounts use the intellectual property of an investment professional to achieve a customisable investment solution for an individual client.

The managed account structure allows advisers to set the investment objective with their clients up-front so the portfolio can be rebalanced without requiring additional advice. It works very well for busy clients who are satisfied with the transparency the managed account provides and do not need to be involved in every portfolio decision.

For equity-based strategies, your client has beneficial ownership of the shares they are invested in*, giving them access to company dividends and imputation credits that can improve tax outcomes. 

This provides the benefits of investing directly in the stock market without the administrative burden. At the same time, your client benefits from the expertise and research resources of a professional manager.

Depending on your client’s financial goals and circumstances, a managed account can have a number of potential benefits including:

  • Convenience – Your client agrees an investment objective with their adviser and the portfolio can be rebalanced without having to provide additional advice.
  • Tax efficiency – Managed accounts are not pooled investments; each investor is typically the underlying owner of their assets*. This means investors do not inherit existing tax positions like other pooled structures (such as managed funds). Instead, the investor’s tax position is their own. 
  • Transparency – You and your clients can view the underlying securities (which you can’t do in a managed fund). This ability to track the performance of the holdings can increase engagement with the client and give advisers more opportunities to discuss the portfolio.
  • Agility – managed accounts offer the advantages of dynamic asset allocation, allowing managers to take advantage of emerging opportunities and manage risk.

What legal structures are available?

The extent of these benefits differs depending on the legal structure you select for your client’s managed account.

  • Separately Managed Account (SMA) – retail 

    SMAs are usually a non-unitised registered Managed Investment Scheme, governed by a constitution and a PDS. SMAs are constructed on a 'model portfolio' basis by an investment professional and any changes in the model portfolios will result in corresponding changes to the client’s portfolios. 
  • Individually Managed Account (IMA) – wholesale 

    Typically operating as unregistered schemes, IMAs offer greater customisation than SMAs and can be fully tailored to each client’s needs. 

    IMA investors receive a portfolio that has been specifically created for them based on selected investment strategies. An IMA manager may exercise discretion over the timing of trades for their investors. IMAs also provide the ability to take into account capital gain and loss positions, incorporating tax implications on each stock and the overall portfolio for that client. 

    For example, for a self-managed superannuation fund (SMSF), the manager may place more weight on generating franked dividends. Or, for clients with higher margin tax rates, the manager may decide that long-term capital appreciation is more valuable. This service also offers active and passive investment strategies managed by a range of investment managers. Strategies can include funds, ASX and international securities and can be blended to create bespoke multi-manager strategies. 

What are MDAs and UMAs?

Two more acronyms that you may come across are:

  • Managed Discretionary Account (MDA) 

    ASIC defines MDAs as “client portfolio assets that are managed on an individual basis by another person (MDA provider) at the MDA provider’s discretion, subject to any agreed limitation.” 

    Following initial agreement with the client, the MDA operator takes on responsibility of the investment selection and on-going portfolio implementation without requiring on-going client approvals. There are specific license authorisations required to operate an MDA. The regulatory regime is currently changing with new licensing requirements introduced under ASIC’s Regulatory Guide 179.
  • Unified Managed Account (UMA) 

    This is typically a reporting solution that brings together all types of investment vehicles in an investor's portfolio. Essentially, it’s a platform that provides a single overview of all the investor’s portfolio including SMAs, IMAs, term deposits, cash, property, and a range of other asset classes.

Managed accounts offer simplicity and scalability with the ownership*, tax-effectiveness and transparency of direct investing. For many of your clients, these accounts will be an attractive means of gaining exposure to a range of investments.

Macquarie can help you discover which managed account solution is best for you and your clients. Find out more now.

*It’s important to note that the ownership structure would differ in a retail superannuation account.

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