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Lonsec   ⟩   News & Insights   ⟩   Insights   ⟩   How new technology is facilitating the implementation of more advanced portfolios
Lukasz de Pourbaix

AuthorLukasz de Pourbaix

TitleChief Investment Officer, Lonsec Investment Solutions

DateJanuary 29, 2019

CategoryInsights

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In the not-to-distant past, managed accounts were seen as a single cog in a client’s overall investment solution. While offering advantages for certain clients seeking a more personalized approach, advisers and model managers were limited in their ability to provide diversified, multi-asset model portfolios using a managed account structure.

Fast forward to today and the situation is very different. Developments in platform technology have meant that managed account solutions encompass a variety of portfolio structures, from single sector equities to holistic multi-asset portfolios. This has made managed accounts far more relevant to financial advisers as they seek portfolio solutions that can meet different client objectives and risk characteristics. Instead of offering an alternative for clients with sufficient knowledge of how managed accounts work, advisers can now use managed accounts to provide a full, actively managed investment solution that meets their clients’ needs.

This flexibility has led to improved implementation and greater efficiency compared to the traditional notional (paper-based) model portfolio structure. Today’s managed account structure enables effective implementation of a range of different investment philosophies and portfolio construction approaches. A good example of this is dynamic asset allocation, which under a notional model portfolio structure is impossible to implement responsively due to the administrative complexities involved.

There has also been an evolution in the composition of portfolios within managed accounts whereby multi-asset portfolios are becoming increasingly investment vehicle agnostic, with portfolios increasingly including a mix of Separately Managed Accounts (SMAs), Exchange Traded Funds (ETFs) and traditional managed funds. Greater flexibility and the ability to implement dynamic asset allocation views in a timely manner will become more important, especially as we move into a market environment characterized by increased volatility and potentially lower returns.

Along with this increased flexibility, there is of course a greater requirement for the model manager to be sufficiently equipped to manage, implement, monitor and report on the managed portfolios. As the managed account sector matures, with large institutions increasing their presence in the market, the barriers to entry from a platform, responsible entity, and superannuation trustee perspective have increased. This means that financial advisers need to conduct appropriate due diligence on their model managers to ensure they have not only the right research and investment expertise but also robust governance structures and reporting processes.

The trend towards multi-asset managed portfolios will only continue to grow as financial advisers recognise the efficiency that managed accounts can bring to their businesses. The ability to construct and implement dynamic, multi-asset portfolios has enabled advisers to enhance the value of their offering and provide clients with better portfolio communications and a superior advice experience. Technology platforms supporting managed accounts have already made significant advancements, and this will undoubtedly continue as model managers are able to access an ever-expanding range of investment products, allowing advisers to implement more sophisticated model portfolios.

As technological barriers are removed and managed accounts become more central to the way advice businesses operate, the challenge for advisers is to partner with the right model manager to ensure that solutions are aligned with their investment philosophy and that the manager is able to meet the needs of the adviser’s clients. For the model manager, the challenge is to offer the right mix of capabilities while remaining competitive. This inevitably requires both parties to adapt, but the reality of change is impossible to ignore. In this new world, success starts with acknowledging the change and creating a strategy that anticipates the growing power of managed accounts and their revolutionary impact on the advice industry.

Want to find out more?

Get in touch to find out how we can help you start implementing managed portfolio solutions for your clients. Call us on 1300 826 395 or email info@lonsec.com.au.

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