While the benefits of managed accounts for clients are well-documented, there are also numerous benefits that they bring to businesses, writes Xplore Wealth’s Anne Hamieh.
Financial advisers are under a significant amount of strain in this evolving industry as they face technological advancements such as robo-advice and challenging market conditions with low interest rates while endeavoring to deliver best in class service to their clients. Add to this the pressure mounting from Government, regulators and internal market forces to adapt and thrive.
This sustained pressure, which has increased following the Hayne Royal Commission and its 76-point recommendations, is fundamentally testing business models, remuneration, revenue sources and business valuations.
Every aspect of financial advice is under the microscope as the sector complies with increased educational and compliance requirements, under the banner of renewed regulatory and community expectations.
This focus is driving greater numbers of advisers to re-think their licensing and business model arrangements, re-calibrate their value-add to clients, and reinforce their role as the ‘trusted adviser’ in the lives of their clients.
At a structural level, the previous dominance of institutionally-owned, vertically-integrated advice models is unwinding. There is pressure on advice businesses to form new fee and revenue arrangements, while the implementation of the Financial Adviser Standards and Ethics Authority (FASEA) regime is also adding time and cost burdens to advice businesses.
An outcome of the Royal Commission is heightened scrutiny and increased regulatory and compliance costs. Regulators will remain under pressure to be more active in enforcement of advisers’ client ‘best interest’ obligations.
So, is the consequence of all this change an industry bogged down in regulation, or one moving forward to fresh opportunity? We think it’s the latter and we see a stronger, self-determined industry that is striving to uphold its reputation as a respected and trusted profession.
A TRUST REBUILD UNDERWAY
Research conducted by Xplore Wealth has reinforced our belief that use of managed accounts in client portfolio management offers advice businesses the potential to deliver an improved client experience. This can take the shape of increased portfolio flexibility and transparency, greater tax-effectiveness, reduced costs, and the opportunity to free up the adviser’s time.
This ‘time release’ from administrative tasks helps the adviser to develop deeper relationships with existing clients and a better understanding of their goals and objectives.
There is also a potential ‘efficiency benefit’ from increased adviser and practice productivity and opportunities for scaling the business through the devotion of more time to identify and develop new client relationships.
According to research undertaken by Business Health and the Institute of Managed Account Professionals (IMAP) , 87% of advice practices surveyed indicated that they had reduced their administrative workload since adopting managed accounts in portfolio construction, and the practices surveyed reported having on average 7.4 weekly client appointments compared with six industry-wide.
Similarly, over three-quarters (79%) of the advisers surveyed in the Investment Trends 2019 Managed Accounts Report indicated that they believed that using managed accounts was a benefit to their clients, 74% agreed that it helped their business, and two-thirds believed that using managed accounts had a positive impact on their client value proposition.
Xplore recently sought the insights of a number of advice professionals about their perspectives and practical experience of the ‘efficiency benefits’ gained from using managed accounts in their clients’ portfolios.
A number of key themes emerged (adviser quotes in italics).
- The ability of managed accounts to accommodate the specific needs of advice businesses and clients – “clients increasingly want a bespoke experience, and you the advice business have to be able to deliver”;
- The ability to construct and manage a flexible and diversified portfolio to enable clients to achieve their goals – “you can give the client reassurance that they can do the lifestyle things they want to do”;
- Eliminating the need for a record or statement of advice for every transaction, reducing the administrative burden for the client as well as for the adviser – “we can now run the wealth/investment side of the business with much reduced paperwork” – and the ability to implement change simultaneously, reducing time-lags updating individual client portfolios and delivering a better client experience;
- The ability to tailor portfolios to meet the specific needs of different client age cohorts – “for the older cohort, those in their 50s and 60s, who can't afford to have massive write-downs in the value of their investments as they approach retirement, we need to have models that meet this specific need. This is what managed accounts allow you to deliver, rather than just standard one-size-fits-all product solutions”;
- Opportunities for more effective management of the tax implications of asset ownership and transactions, and the significant benefits associated with the beneficial ownership structure in management of capital gains tax scenarios, as the client’s tax position is unaffected by the actions of other investors, compared with unlisted managed funds – “we can make more effective tax decisions based on the client's individual holdings”;
- Increased opportunities for devoting more time to reviewing and better understanding existing clients’ attitudes and goals, undertaking behavioural coaching conversations, and initiating and developing new client relationships – “I have a profitable business largely because I've been able to focus more on the relationships rather than the mechanics of investments”; and
- Enabling client conversations to become less of an investment discussion – “to just be across the investment piece is doing a disservice to the client” – instead developing deeper relationships, learning more about their circumstances, being able to learn more about clients’ families and take a multi-generational view on their situation, and being able to develop strategies to mitigate the risks and stresses in clients’ lives.
We believe managed accounts supported by high-functionality technology through a single platform, a broad range of local and global investment choices and backed by transparent fee structures and reporting provide a significant efficiency benefit for financial advisers. .
They enable advisers to manage client portfolios more effectively, eliminate time-consuming manual activities, to deliver quality financial advice in the client’s best interests,
This in turn helps to strengthen their value proposition as the valued partner enabling the client to achieve their financial and lifestyle goals.
All of this ultimately contributes to helping the adviser “build the trust equation” – developing the deeper, trusted client relationships which are the foundation for sustainable advice businesses and ultimately greater confidence in the evolving financial advice profession.
Anne Hamieh is head of distribution and marketing at Xplore Wealth.