Advisers using managed accounts to grow client base

More advisers are directing client money into managed accounts but some in the industry question the benefits.

State Street Global Advisors’ Sinead Schaffer. Picture: Supplied

More financial advisers are putting client money into managed accounts to free up their time to grow their books, but some in the industry caution the higher fees mean these investment options may not be a good choice for investors with lower balances.

An estimated 59 per cent of advisers are now using managed accounts, up from 56 per cent a year ago and just 20 per cent in 2015, according to a new report from State Street Global Advisors and Investment Trends.

Managed accounts are investment options that see clients directly own a suite of underlying assets that are managed by a professional manager. They differ from the more traditional managed funds model that sees clients own units in a pooled investment.

Of the 41 per cent of advisers that don’t use managed accounts, 16 per cent indicated they may use them in the future, the joint survey from SSGA and Investment Trends, based on responses of 946 advisers – about 6 per cent of the total adviser pool – found.

Most advisers said they were recommending managed accounts more frequently because it gave them the ability to achieve “full asset allocation” for clients, while 60 per cent said it freed up their time to focus on other tasks.

“Each year, more advisers are turning to managed accounts because they allow for a more holistic approach to wealth planning,” Investment Trends chief executive Eric Blewitt said.

“As a result of time saving, 48 per cent of advisers reported redirecting that time to enhance client relationships, while 26 per cent are using it to acquire new clients,” Mr Blewitt added.

Advisers using managed accounts allocate, on average, 71 per cent of clients’ total assets into these investments. At the same time, they are directing a record 48 per cent of new client inflows to managed accounts, up from 41 per cent a year ago.

“The growing adoption among the latest cohort of users is primarily driven by the demonstrated value managed accounts bring to both advisers and their clients, SSGA vice president and ETF model portfolio strategist Sinead Schaffer said.

Advisers reported saving an average 23.9 hours per week due to managed accounts.

“While freeing up their time to focus on client engagement is the key benefit of recommending managed accounts, advisers also see using managed accounts as a cost-effective way to access professional investment management for their business,” Ms Schaffer said.

Fox & Hare Financial Advice, which specialises in building wealth for 20 to 45-year-olds, does not use managed accounts for clients, in part due to the cost, says founder Glen Hare.

“Given we have a much younger member base, costs like administration fees and management fees and the like really need to be taken into account. If you’ve got a managed account, then usually you’re going to have a portfolio of multiple underlying holdings, 10 to 15, or even 20 to 30 different funds,” Mr Hare said.

“We predominantly follow an index, passive-style approach, which is much more cost-effective. In my experience, managed accounts only really become beneficial or relevant, if someone is investing significant sums of money, in the hundreds of thousands of dollars.”