Investors pile into managed accounts as advice sector faces shake-up

Demand from investors and their professional advisers for separately managed investment accounts is tipped to continue to rise.

State Street Global Advisors vice president Sinead Schaffer said a record amount of client cash is flowing into managed account products.

More Australians are expected to plough their cash into separately managed accounts as they grow their wealth, if mooted reforms to financial advice kick in.

That’s the view of key figures in Australia’s wealth landscape, with global asset managers State Street Global Advisors noting the recent run up in demand for the managed accounts is pointing the way for investor demand in the years ahead.

In a report released on Friday, State Street Global Advisors revealed a record amount of client cash is flowing into managed account products as financial advisers steer their clients into the management options.

Almost 25 per cent of new client inflows was being locked up in separately managed accounts, well up on the 4 per cent recorded in 2015.

The shift comes as more advisers offer the products, with State Street Global Advisors noting almost one in two in the sector offer the products.

This had led to a jump in funds under management, with $194.85bn now locked up in managed funds products, up 146 per cent over five years.

State Street Global Advisors vice president Sinead Schaffer said the asset manager had seen a boom in managers piling into growth strategies, on the back of a rapid recovery in equities.

But she said this was pivoting to income strategies, reflecting a desire to capitalise on higher interest rates as well as a broader shift in the ages of wealthy Australians who were increasingly entering retirement.

“We think that this is only going to increase as the amount of retirees in Australia need to kind of provide for that retirement phase of their life,” Ms Schaffer said.

She said tax obligations were also a key consideration for retirees, with the managed accounts allowing investors to control the underlying assets and structure their funds in such a way to avoid tax events.

Separately managed accounts are investment options that allow investors to own underlying assets, while farming out their management to an adviser or professional investment manager.

Ms Schaffer said advisers used the managed accounts products as they were more efficient and allowed them to focus on investing clients funds.

Ms Schaffer said the managed account option was a sweet spot for investors with $100,000 up to almost $1m.

Investment Trends chief executive Eric Blewitt said the shift towards separately managed accounts was coming at the expense of unlisted managed funds.

He said this was likely because the diversity of investment options on offer had grown, making the accounts more attractive to investors.

Mr Blewitt said the proposed reforms to financial advice will likely make it easier for millions more Australians to get access to financial advice.

He noted a key barrier had been cost and complexity.

Mr Blewitt said the data from the report suggested the likely winners from the reforms, with exchange-traded funds, index funds, and managed accounts all likely to see inflows from investors.