Managed accounts boom
Managed accounts have become very popular with financial advisers over the last few years mainly due to technological and regulatory changes. These changes have meant (amongst other things) that clients are able to invest directly in a range of instruments and advisers can earn portfolio management fees.
What are Managed Accounts?
There is a range of confusing acronyms such as MDA, SMA, MIS and IMA etc that a potential investor needs to understand. Fortunately, the Institute of Managed Accounts Professionals (IMAP) has provided a guide at their website: https://imap.asn.au/publications/glossary.
Some key points made by IMAP are that:
‘Most terms have grown up through use and adoption and many do not carry a legal definition. There are legally defined terms that relate to the managed account market, the Corporations Act, ASIC Act and the relevant regulations, including the MDA related regulations, LI 2016/968 and RG179. The Corporations Act is the primary source of law for financial services and financial products. However, as managed account services of various types have been developed, words and terms not specifically defined in the Corporations Act have come to mean what the user wants them to mean’.
A managed account service will contain three main components – Services, Elements and Roles which is the basis for this definition of a managed account:
Delegation of the management of a portfolio of assets by an investor to a suitably authorised manager, generally at a cost;
On the terms set out in a standard offer document / agreement rather than an agreement specific to a single client; and
Where the administration of the portfolio is an integral part of the overall service.
Practically, managed accounts have been established in a range of single asset class sectors (such as Australian and global equities) as well as multi-asset portfolios.
How rapidly has the sector been growing?
Recently (26th March 2018), IMAP / Milliman released the latest managed account census data for the year ending 31 December 2017.
As at 31 December 2017, FUM in Managed Accounts stood at $57.04 bn. This balance represents a six month increase of $9.08 bn (or 18.9%) on the 30 June 2017 FUM total of $47.97 bn. For the 12 months “year on year” period this represents an annual growth rate of 45% or $17.87 bn in FUM.
IMAP estimate that “$3.37 bn of the increase is due to inflows of new funds from existing participants growing their Managed Accounts business, compared with $4.4bn in previous 6 months period. Totalled for the past 12 months gives a figure of $7.88 bn new funds inflow for 2017”
Indeed, IMAP are recognizing best practice in the managed accounts sector and have announced the inaugural IMAP Managed Accounts Awards which will be held on 1st August 2018. Nigel Douglas from Douglas Funds Consulting is one of the independent consultants on the Awards Committee.
Conclusion - scope for more growth ahead
There would appear to be considerable upside for managed accounts growth as the sector is relatively small compared to the total for Masterfunds, Platforms and Wraps which is reported by Strategic Insights at $ 821.4 bilion at December 2017.
Platforms have sought independent consulting advice to assess multi-asset managed accounts portfolios and this has been a service offered by Douglas Funds Consulting who have completed projects for clients over the last year.