Mr Potter delivered a presentation entitled ‘Managed Accounts: The Next Best Thing?’ alongside Crystal Wealth executive director John McIlroy at the 2014 FPA Professionals Congress in Adelaide yesterday.
He went through a list of processes currently employed by typical ‘suburban’ financial planners.
“Advisers must ‘know the client’, know the product, provide strategic advice, undertake risk profiling, do asset allocation, do manager selection, do security selection (if you’re in a direct investment area) and then implement it all,” Mr Potter said.
Next is a handover to platforms, administrators and custodians, he said – followed by ad hoc adjustments by the planner and then followed by a periodic review.
Overall, the process is an extremely “circuitous” and “interlocked” way to get a client from ‘point A to point B, Mr Potter said.
“It seems that if you were trying to arrive at a set of processes that are poorly designed, and likely to generate tonnes of error and tonnes of complexity and high cost, this is it,” he said.
The solution presented by Mr Potter and Mr McIlroy revolves around the adoption of managed account structures by financial planning licensees – whether they are managed discretionary accounts (MDAs), separately managed accounts (SMAs) or individually managed accounts (IMAs).
Mr Potter highlighted recent research conducted by Philo Capital Advisers on behalf of the Institute of Managed Account Providers (IMAP) to demonstrate the benefits of managed accounts.
“What [Philo] found is that the capacity of advisers to service clients went up by about 15 clients per adviser [when the practice converted to managed accounts],” he said.
“That represented about a one-third increase in the ability of an adviser to be giving clients [advice] rather than dealing with paperwork,” Mr Potter said.
“The costs of running their business through improved staff efficiencies fell by seven per cent,” he added, noting that there was also a demonstrable increase in revenues.
Financial planning businesses can improve their efficiencies in the back office by using MDAs etc. I think all dealer groups have seriously thought about offering this solution and more are looking at it more closely for their advisers..
Sounds all fine until you realise that Mr Potter is pushing a product. Where have we had complaints about product pushers before?
I agree the process is long and convoluted by design, as it needs to satisfy all the definitive parts of the law, which is long and convoluted. The process can and should be more streamlined but while ever clients and solicitors look for a scapegoat with deep pockets – read PI insurance – the process is long and convoluted as other solicitors look to protect financial planners and licensees from bad advice and from opportunist clients that no longer like what they asked for and want to recover their losses from being to greedy.
Agreed. Puts all the nonsense about vertically integrated businesses into context. FP businesses must find efficiencies and creating an inhouse investment solution is key to that.