Managed accounts growth soars on BID considerations

The SPDR ETFS/Investment Trends Managed Accounts Report surveyed more than 900 advisers and found that 70 per cent now used managed accounts in their practice, up from 44 per cent in 2012.

Investment Trends chief executive Sarah Brennan said the biggest increase in usage had come in the last 12 months, as advisers grappled with the administrative challenges of portfolio implementation and client service during the COVID crisis.

"COVID is a great use case of the benefit of managed accounts for financial planners," Ms Brennan said.

"Looking at the statistics, 80 per cent of planners say using managed accounts free up their time, particularly during COVID because they wanted to free up time to be able to look after clients. When there was more volatility and that real need, those advisers who serviced clients proactively were very highly valued."

Advisers were also increasingly finding that managed accounts were a better fit with their regulatory obligations than traditional investment structures, with 81 per cent of advisers who used them saying they were a "good" or "very good" fit with the best interest obligations.

This compared to 63 per cent who said a portfolio of managed funds was a good or very good fit with best interests duty, and 69 per cent who said that was the case for a portfolio of direct shares.

State Street ETF model porfolio strategist Sinead Schaffer said the finding was a signal that managed accounts were likely to broaden out from their traditional beginnings as an investment solution specifically for high-net-worth clients.

"Planners who use managed accounts believe it’s easier to demonstrate best interest compared to managed funds or direct shares – that’s pleasing to see because it suggests these make sense for all clients. They are supporting advisers in meeting their best interest duty when recommending investment structures," Ms Schaffer said.

However, the statistics indicated the experience of meeting best interests duty was varied among aligned and independent advisers, with independent planners saying their biggest challenge meeting best interest duty was justifying their value-add to clients when using managed accounts.

Meanwhile, aligned advisers said their biggest problem when meeting best interests duty with managed accounts use was being able to do the proper due diligence on the different managed account offerings.

The report also revealed that the variety of investments available under a managed account structure was still a key barrier to further take-up, with around 35 per cent of planners saying they would allocate more client funds to managed accounts if there were global equity models available.

A further 30 per cent said they would allocate more to managed accounts if responsible investments were available in a managed account format.

"Advisers are favouring diversified solutions and for them to look for another provider that might meet clients needs they are looking for a wider range of sectors than what the current managed account offerings have," Ms Schaffer said.

"Younger planners in particular are asking for ESG managed account solutions, so I think we will see further growth in this space in the future."