While financials and materials dominated trades leading into 2024, the popularity of other sectors like healthcare and information technology followed generational, and even demographic, lines.
The representative working group is lobbying the government for a broader section of study to be eligible for credit within the ‘equivalent degree’ requirement for advisers in the hope that more people will be encouraged to join the profession.
Managed account boom reflects diverse industry
The 12th edition of the Managed Accounts Report, a joint effort between State Street Global Advisers and Investment Trends, was released this week, with the results offering powerful insights into a fast-evolving financial planning industry. The diverse, but high-growth, sector spans everything from separately managed accounts, to individually managed and managed discretionary accounts, which according to the Institute of Managed Account Professionals (IMAP) reached a total of $95 billion in assets under management in 2020.
According to the report, about 70% of Australian financial planners are now using, or more importantly, intend to use managed accounts in the foreseeable future; this is up from just 44% in 2012. The growth, according to the 905 respondents in the report, is being driven by the additional flexibility and time savings these afford, allowing more opportunity to build better client relationships and educate their clients.
2020 offered the opportunity for managed accounts to prove their worth to the planners who use them, with the results, evidenced by this report, seemingly positive. Prior to the pandemic, planners were recommending about 12% of new client inflows into managed accounts, but just one year on and this has increased by 42%, to 17% of capital flows. Given the size of the planning sector, this is a truly significant trend.
According to Investment Trends CEO, Sarah Brennan, “financial planners tell us that managed accounts are not just for their wealthy clients – they are suitable for wealth accumulators, millennials, and SMSFs, alike. These solutions sit at the heart of democratising investing, and many planners find it easier to demonstrate clients’ best interest obligations with managed accounts.” This final point is increasingly important in a post-FASEA world in which planners must ensure that not only is the product appropriate for the client, but that they also have the competence to provide these services to clients.
This is likely a key reason behind the report finding that nearly 60% of financial planners use models managed exclusively by an external investment manager, all but removing themselves from the day-to-day investment decisions. This also reflects the huge change across the industry where advisers are either doubling down on their internal investment capabilities, or outsourcing to professional investment managers.
In 2020, separately managed accounts (SMAs) were the biggest beneficiaries, with more than 80% of planners confirming this was their preferred managed account structure, allowing the outsourcing of both sector-specific equity strategies, as well as multi-asset-class or ‘balanced’ portfolios, which garnered 66% of recommendations during the year. This trend has been confirmed in a number of recent updates from platform operators, including the likes of Praemium (ASX: PPS) which reported it had reached $14 billion in assets in its Virtual Managed Account portfolios.
The future is bright
The report highlights what is an incredibly bright future, if the response from planners is anything to go by. The cost benefits of MAs are clear, with planners able to offer a selection of best-of-breed, low-cost, tailored options to their clients to rival the alternative one-size-fits-all strategies in other parts of the industry. Importantly, the structure, which is most popular with planners advising accumulators between 35 and 49 years of age, with balances above $250,000 but below $1 million, means the important strategic advice these people require can be prioritised ahead of investments, without significant cost.
Current managed account users are now expected to allocate as much as 49% of new client inflows into managed accounts by 2025, while the broader industry in general, including those not allocating, suggests this level will reach 23%, up from just 4% in 2013. The key, of course, in all these discussions is the benefit to the client, with Brennan confirming that “during recent market volatility, most managed account users acknowledged that these solutions gave them more time, helped them to execute trades more quickly and helped them to reduce operational risk.”
