THE uptake of individual managed accounts (IMAs) in Australia will be wholly dependent on whether clients think they are a good investment vehicle, according to Avanteos chief executive officer Mark Papendieck.
Speaking at the IFSA conference he said that SMAs in the US had already created a market worth $500 billion, but similar uptake in Australia remained in the hands of consumers.
“Investors buy professional investment management, but they don’t care what form it takes. If they think IMAs are better, then that is the product they’ll want,” Papendieck says.
Demand will also be driven by investors’ desire to minimise tax, because IMAs are not subject to capital gains tax and can be used to manage year-end tax calculations by delaying asset sales to avoid incurring capital gains tax in the current financial year.
“Tax efficiency is at the heart of IMAs, and this is what the mass affluent want,” says Papendieck, citing the US market, where between 10 and 20 per cent of managed funds performance is lost each year to tax.
The investor appeal of IMAs also lies in the ability to customise portfolios and transfer securities in and out of accounts. Interestingly, the option to customise IMAs is their most popular selling point — yet only about 20 per cent of IMA customers in the US actually exercise this option.
With 70 per cent of retail funds already passing through administrative systems, platform providers will be best placed to offer IMAs.
However, the introduction of IMAs will present a significant challenge to fund managers, which face considerable start-up costs and could see a significant drop in profit margins. It costs up to $3 billion to launch a profitable IMA business in the US, where margins have consequently decreased by 20 per cent as a result of more competitive fee structures.
Despite the costs involved, the onset of IMAs is inevitable, according to Merrill Lynch managing director of business strategy, David Skelton.
“Funds will feel the pain of massive sums of money swinging across into IMA accounts. Australia has seen a 140 per cent increase in the number of high-net-worth individuals, and as wealth grows, so do people’s financing needs and their desire for customised solutions,” he says.
While the costs of investing in technology to cope with handling individually managed accounts will be significant, the industry will ultimately benefit from being automated, and though IMAs could see profit margins diminish, net margins could rise with an increase in client volume, he says.
