Managed portfolios could assist changing advice practices

The adoption of managed portfolios can enable advice practice redesign, with a case study of a small firm showing that over a three-year transition period, client value propositions, business efficiency, and corporate governance all improved.

The case study, commissioned by HUB24 and researched by Stephen Prendeville, found that introducing managed accounts could both benefit clients and provide a springboard for deeper business change.

“Managed portfolios can be a very powerful tool for change that can be dialled up or down depending on the level of business transformation desired,” Prendeville said.

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The research found that the transition to offering managed portfolios couldn’t be immediate, but that once a single significant change was introduced, the next ones would be easier.

For a small self-licenced firm, Prendeville tracked the introduction of managed portfolios over three years. In the first year, client reviews and value propositions were undertaken, as was a tender and selection process for managed portfolio providers. Year two involved developing implementation plans with that provider and training staff, with the provider overseeing the administration and implementation of the transition.

By year three, the migration process was primarily completed already, with 76 per cent of clients migrated to managed portfolios, representing 89 per cent of the firm’s funds under management (FUM). The remaining 24 per cent were those with lower levels of engagement, a reluctance toward change, low balance, or significant capital gains tax liabilities.

Year three, then, focused instead on maximising the governance and compliance benefits offered to the firm by managed accounts. Corporate governance was increased, at some cost, and the principal released from non-essential roles. This reduced the firm’s key person risk, as well as allowing the principal better work-life balance.

It also noted that clients, irrespective of age, were embracing change, so it was more likely planning practices’ principals’ own fears of change that were limiting a shift to managed portfolios.

“Managed portfolios can have such a positive impact on advice businesses and it’s clear from the case study the adoption of managed portfolios can enable significant step change,” HUB24 managing director, Andrew Alcock, said in light of the case study.

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