For advisers looking to employ SMAs and MDAs in their practice, this CEO examines why the latter offers a sweet spot between efficiency and customisation.
The latest Institute of Managed Account Professionals (IMAP) census for the first half of 2024 found managed account FUM had exceeded $200 billion, underpinned by new investment inflows of $14.9 billion in the six-month period.
Separately managed accounts (SMAs) and managed investment schemes (MIS) held $129 billion, representing over 60 per cent of total FUM. Meanwhile, managed discretionary accounts (MDAs) accounted for $52.4 billion, or 25.4 per cent of the market’s FUM, and other services totalled $24.2 billion.
As advisers look to harness SMAs and MDAs for their client base, Philo Capital Advisers chief executive Brett Sanders explored the benefits of both options on a recent IMAP webinar.
“Both SMAs and MDAs are massively important for your business – it’s the most powerful strategy you can employ for a practice owner. There’s a lot that’s common between them, but equally there are some pretty important differences,” Sanders said.
Advisers seeking a higher level of customisation for more complex client needs are better suited to the MDA structure, which allows for greater personalisation such as rebalancing client portfolios with regards to assets outside their MDA, he said.
“It’s easier to be distinctive with an MDA – you can tailor more, you can customise around the branding. We’re a believer that if you’re looking for differentiation, MDAs are the stronger service.
“Customisation is a big theme. You can customise [MDAs] and have a bespoke program at the practice level, but then you would want to take it down to the individual client and customise it further so that it really does fit that client like a glove.”
Meanwhile, Sanders highlighted that SMAs are designed for clients with simpler investment needs who do not require the same level of customisation.
“Moving to managed accounts is very important, but the thing I would draw your attention to is you use SMAs for those clients where you don’t want to vary or customise. They basically come in and say, ‘Yep, I’m happy with one of the options you’ve got’ – their needs are simple.
“As soon as you start customising in the SMA world, you start handing back your efficiencies and it starts to decline because the structure doesn’t support integration of other assets; it doesn’t support customisation as much.
“My advocacy would be to think carefully about that and think about embracing both tools, but using an MDA for those scenarios where you do want to customise a bit more and using your SMA maybe for those that are a bit more vanilla in their requirements.”
He encouraged advisers and practice owners to seek out a balance or “sweet spot” between business efficiency and client personalisation.
“You want that sweet spot where you are getting scaleability and efficiency for your practice, but not at the cost of the ability to customise for individual clients. I think the MDA occupies the lovely sweet spot there.”
Rather than only opting for one or the other, Sanders recommended that advisers utilise both tools for differing reasons.
He added: “Don’t take this as a presentation of a binary choice that you should have SMAs or MDAs. We advocate that you should have both, but they are very different tools and they suit different purposes.”
