Clients are demanding greater exposure to direct shares through their financial advisers, according to Jeremy Pree, head of Lonsec’s stockbroking and equities research division.
“There’s definitely a trend towards providing direct portfolios. It’s what clients are asking for, it’s what everyone’s getting excited about and we should offer them within our practices.
“Now as an industry, we really need to try and get our heads around new types of offerings like individually managed accounts (IMAs) and separately managed accounts (SMAs).
“Direct shares [for adviser clients] are here to stay, and we’re going to get more and more demand for these types of offerings from our clients,” he said.
Pree explains this growing demand as investors’ need for greater control over investment strategy, underlying investment options and taxation consequences on their investments.
There are three ways advisers can provide this: through a broker, either via an online broker if the adviser holds appropriate accreditation, or the use of a partner that can assist in portfolio construction.
This approach requires an extensive administration service, which can be delivered in-house, or via a platform or wrap provider.
Other delivery methods are individually managed accounts (IMAs) or separately managed accounts (SMAs).
According to Pree, the advantages of using a broker are that it is non-discretionary, offers very “high touch” portfolio contact and control but can be onerous in administration and back-office management.
The main features of IMAs are their classification as financial services, not products.
Pree believes they are easier to tailor than SMAs, but tend to appeal more exclusively to high-net-worth clients.
SMAs also provide discretionary management, but are a financial product governed by rules, are not so easily tailored but are also suitable to lower-net-worth clients.
“On direct portfolios, we can clearly see that there is a trend towards direct portfolios being acquired by our clients. They’re asking for it more and more; they’re seeing that shares have the ability to outperform, and they want to get involved with that,” Pree said.
