Platform providers ramp up pressure on managed account operators

Managed account operators will face increased competitive pressure as mainstream platform providers integrate these services into their current offerings according to Zenith Investment Partners director David Wright. 

According to Wright the provision of managed accounts “is a skinny margin business” and efforts by large scale platform providers to include managed account capabilities could put pressure on smaller providers. 

Wright stated that BT Financial Group’s staged rollout of its platform revamp project was a case in point. BT Financial Group already offers two individually managed accounts and one separately managed account offering, which will be integrated with its wrap product at the completion of the three year redevelopment project. 

Wright said the growing use of managed accounts by financial planners was being driven by concerns around fee transparency within investment products and by efforts to reduce costs paid by clients for investment products and administration. 

He stated that the advent of Future of Financial Advice reforms had caused some initial interest from advisers in setting up their own multi-manager funds to control costs and bypass platform fees. However this interest shifted to managed accounts when the mid-sized dealer groups who expressed interest in creating their own funds examined the mechanics and costs of such funds. 

“There needs to be about $1 billion in funds under management to get the cost and administration efficiencies required to run your own funds which many of the groups who came to us found they could access via the use of managed accounts,” Wright said. 

“Planners have found a happy medium and are moving into managed accounts or managed discretionary accounts if they can get the licensing because it is easier to adjust portfolios and charge asset based fees to clients. However the cost advantages and tax efficiencies can be eroded in the event a portfolio is heavily traded by the adviser or client. ” 

While the managed account sector has more than $10 billion in funds under administration according to Institute of Managed Account Providers, more than two thirds of those funds are administered by four managed account providers - BTFG, Praemium, SFG and Philo Capital. 

Wright said the increasing use of managed accounts by financial planners will return platform use back to its roots with planners using them for administration and reporting while creating portfolios from their own selected investments.  

“Platforms came into being because advisers did not at the time have planning software that could consolidate investment reporting. Managed accounts now allow them to combine investments from any source and charge an asset based fee for the advice while eliminating concerns about commissions, rebates and platform fees,” Wright said.