Trump-inspired market gyrations the first big test for Australia’s SMA consultants

Since most SMA strategies were developed, after the Global Financial Crisis (GFC), they have primarily operated in relatively calm market conditions – with the exception of the quick-onset, quick-recovery COVID Crash of 2020. Sold to advisers as semi-institutional capabilities that could enable advisers deliver institutional-level risk management, market access, and execution in each client account, the SMAs are now facing their first genuine period of prolonged volatility.

Post-GFC SMA strategies under pressure

Over the past decade, SMAs have transformed from niche products to mainstream offerings, growing rapidly to reach approximately $148 billion by late 2024, a surge of almost 36 per cent in just the most recent year. This expansion occurred in largely favourable market conditions characterised by steady gains and limited volatility.

But today’s turbulent market, characterised by unpredictable and frequent shifts due to trade wars and political uncertainty, poses a critical new challenge. These conditions will test whether post-GFC SMA strategies, initially designed for stable markets, can effectively manage risks during a prolonged downturn.

Agility versus inertia: Diverse approaches among asset consultants

The recent volatility is revealing stark differences in how consultants manage SMA portfolios, highlighting their agility or exposing their inertia:

• Bold tactical moves: Lonsec, for example, has responded proactively by reducing developed-market equity exposure to slightly underweight while strategically adding to emerging markets based on attractive valuations. Such tactical repositioning demonstrates responsiveness and foresight.

• Conservative rotations: Other consultants are adopting a conservative stance, increasing allocations to cash and defensive assets like investment-grade bonds or gold. This approach aims to preserve capital and minimise downside risks in uncertain times.

• Disciplined rebalancing: Several SMA providers remain committed to their long-term strategic allocations, methodically rebalancing portfolios even amidst sharp market swings. While disciplined, this method faces risks of lagging performance if the downturn proves prolonged.

• Opportunistic trading: A select few are aggressively trading the volatility, swiftly shifting asset allocations to capitalise on short-term market movements. This high-risk, high-reward strategy demands precise execution and impeccable timing.

Execution challenges for wrap platforms

Behind these strategic decisions lie wrap platforms responsible for executing portfolio changes. The current market volatility puts these platforms under significant operational pressure. High trade volumes, frequent portfolio adjustments, and liquidity challenges pose real risks. Platforms like HUB24, Netwealth, Macquarie Wrap and BT Panorama are being closely watched for their ability to handle increased trade volumes, provide timely execution, and avoid costly operational errors. If advisers find that their decisions move too slowly through the system in terms of execution – eating-up much of the anticipated benefit of the change – the failure could severely damage consultant and adviser confidence.

It must be conceded, however, that analysis of SMA returns is imprecise, as it depends on the information available from the platforms. There does appear to be huge variation in outcome of some balanced/growth SMA strategies – 6 per cent versus 12 per cent over 12 months, depending on which selected – but the reported dats is not standardised, and must be taken with a grain of salt.

Some platforms give no clarity regarding what price date the underlying manager (particularly when using offshore managers) returns were when they produced their returns; others do not even report their returns, saying they are only available from the manager. This is a young sector that is working out how best to inform its users.

Key industry players in the spotlight

The Trump-inspired market downturn is also accelerating shifts within the SMA consulting landscape, reshaping industry dynamics:

• Generation Life, Lonsec, and Evidentia: Generation Development Group’s recent acquisition of Evidentia and integration with Lonsec’s investment solutions division positions it as the largest managed account provider in Australia. The group’s significant resources and infrastructure mean it’s well-positioned to manage the downturn effectively – but its sheer size will test its ability to remain agile and responsive to rapid market changes.

• Zenith: Navigating ownership challenges: Zenith Investment Partners, now under UK-based FE fundinfo ownership, faces a test of its market responsiveness and local market insight. Observers question whether Zenith can swiftly navigate complex market conditions amid internal management shifts and a distant corporate parent.

• JANA’s expansion into retail: Institutional powerhouse JANA Investment Advisors recently expanded into retail consulting, introducing its expertise to a broader market. This downturn will serve as a critical test of JANA’s ability to deliver institutional-grade risk management, speed, and clear communication within the more dynamic retail environment.

• Boutique providers: Agility or vulnerability? Small-scale, boutique SMA providers promise personalised strategies and agile management, yet this downturn will reveal whether they possess the necessary resources and resilience. Boutiques must demonstrate they can manage risks effectively without extensive infrastructure or face significant client defections.

A moment of industry reckoning

This downturn isn’t just another market correction; it’s a pivotal moment of reckoning for SMA consultants. Those who successfully navigate these turbulent conditions will significantly enhance their credibility among advisers and investors, establishing themselves as trusted managers capable of handling extreme market stress.

Conversely, consultants who falter through indecision, poor strategy execution, or inadequate communication face long-lasting reputational damage. Advisers and their clients, who have entrusted their investments to these consultants, will scrutinise performance closely and remember clearly who protected their wealth when it mattered most.

Ultimately, this crisis serves as a rigorous real-world test, distinguishing SMA managers capable of agile, strategic adaptation from those whose strategies crumble under pressure. For asset consultants, the period of easy returns and comfortable assumptions is over. The stakes are high, and the financial advice industry is watching carefully, awaiting a verdict that will reshape the competitive landscape for years to come.

Staff Writer