SMAs dominate as adviser number dwindle

Separately Managed Accounts (SMAs) are growing in popularity, according to Rainmaker’s latest research, which revealed that their footprint in the managed account sector jumped from one-third to one-half in just two years.

Managed accounts can be split broadly into three types: SMAs, MDAs and other Investor Directed Portfolio Services (IDPS) or IDPS-like investment schemes.

In dollar terms, Rainmaker’s research revealed, funds under advice (FUA) in SMAs increased by 151 per cent in 24 months, compared to FUA in Managed Discretionary Accounts (MDAs), which only added 44 per cent.

“SMAs are growing three times faster than MDAs,” said Alex Dunnin, executive director of research and compliance at Rainmaker Information.

Mr Dunnin pinned their success on the fact that they are easier for financial advisers and investment managers to work with compared to managed discretionary accounts which can require special extra licensing.

“SMAs are also more scalable and easier to explain to investor clients, meaning they can engage with them more easily,” he said.

Mr Dunnin predicted that the dominance of SMAs will continue, especially in an environment of decreasing adviser numbers.

“Explosive growth in managed accounts combined with sustained financial adviser market compression suggests this trend of SMA dominance will continue,” he explained.

The rapid growth of SMAs is also said to be fuelling the rise of managed accounts holistically as an investment vehicle. Namely, managed accounts FUA reached $163 billion as at 30 June 2022, having grown by 46 per cent over the past five years.

“Managed accounts are growing rapidly while other platform segments, such as regular retail personal and corporate superannuation and retirement platforms, are being constrained by the widespread disruption and heightened competition that the platform market is experiencing,” Mr Dunnin concluded.