Risk of 'nonsensical' investment transactions in SMA model portfolios
Using different managers to manage separately managed account (SMA) model portfolios is resulting in some “nonsensical” investment transactions, according to Peter McVeigh, director of investment advice firm Elston Partners.
“It’s possible for a SMA client to get two opposite transactions on the same day — one buying AMP and one selling AMP [for example]," McVeigh said.
“This is because SMA model portfolios are usually offered under a traditional wrap account, and with several SMA managers under the one wrap, you are going to get different views on particular stocks.
“While the transparency of direct assets is one of their primary strengths as an investment, unless these are managed entirely from the client’s perspective, it can create problems for advisers."
McVeigh said he could not comment on what the potential impact of these investment crossovers are on SMA investor accounts, as he did not know if some SMA providers had mechanisms of preventing these.
"However, any reasonable person investing in direct equities is entitled to expect that they are not both selling and buying a stock at the same time.
"Nobody would manage their own money this way, so why would you pay a manager to do it?"
He said, by contrast, Elston Partners offers a managed discretionary account in which "this type of crossover does not occur because we are managing the whole of a client’s portfolio".
“We have an agreement with the client to manage all their funds on a discretionary basis based on their risk profile, tax structure and personal preferences, as opposed to a SMA in which clients get multiple model portfolios.”
Recommended for you
ASIC has permanently banned a former Perth adviser after he made “materially misleading” statements to induce investors.
The Financial Services and Credit Panel has made a written order to a relevant provider after it gave advice regarding non-concessional contributions.
With wealth management M&A appetite only growing stronger, Business Health has outlined the major considerations for buyers and sellers to prevent unintended misalignment between the parties.
Industry body SIAA has said the falling number of financial advisers in Australia is a key issue impacting the attractiveness and investor participation of both public and private markets.
