Planners unsure about SMAs – report

Separately managed accounts (SMA) have experienced a difficult transition in the financial planning industry as a result of financial planners’ lack of knowledge and confidence in the investment option, a new report found.

The December 2006 SMA: Planner Report by Investment Trends found only a small number of planners (17 per cent) are using SMAs, while many were expecting to trial SMAs in the next two years.

Investment Trends principal Mark Johnston said the general perception across the industry was that SMAs is a growth area, though research showed actual take-up by planners is considerably slower.

Johnston believes lack of understanding of the nature and role of SMAs is a key factor for the underwhelming response to the investment option. Another factor is lack of confidence in the industry, with few SMAs on approved lists.

“The lack of SMAs on the approved list creates a challenging paradox for SMA providers. With relatively small amounts of money so far invested in these structures, there is little imperative for ratings houses to review existing offerings,” he said.

“Without these product ratings, it is far more difficult for the SMA providers to be added to dealer groups’ approved lists. It will take time to work through these issues, as well as to bring greater clarity on the role and benefits of SMAs. This is why we expect adoption will be more of a slow burn rather than a sudden shift,” Johnston added.

The December 2006 SMA: Planner Report was based on a detailed quantitative survey of more than 230 financial planners in November 2006. The report examined the understanding, perceptions, adoption and usage of SMAs by the financial planning industry. Incidence of usage was measured from an unrelated survey of more than 1,000 planners conducted in October 2006.