Large advice groups seeking ratings for SMAs

According to the latest Institute of Managed Account Professionals census to 30 June, SMAs make up two-thirds of the $256.2 billion managed account market.

In a video with SQM Research founder Louis Christopher and relationship builder Matt Hattersley, the pair discussed how large advice firms are setting up their own SMAs as a way of improving their advice efficiency.

Hattersley said: “SMAs are an area that has changed dramatically where, post royal commission, we have seen massive growth. In the last few years, we have seen a shift from early movers who were the bigger consulting houses and the bigger fund managers, over to the actual advice groups who are building their own.

“SMAs allow the adviser to implement their investment thinking and have it replicated across all their clients. They save time and effort by doing it in one sitting, which allows them to focus more time on the big decisions and allows a much smoother implementation of the portfolio across their whole client base rather than having to do it individually, which can take over 12 months. They can make the appropriate changes instantly through an SMA.”

With firms under a responsibility to conduct their own due diligence on the investments they use for their clients, Hattersley said obtaining a rating is a way for firms to demonstrate their independence and prevent conflict of interest by doing due diligence on their own internal solutions.

“There are two camps – big dealer groups of 50–100 advisers who are running their own portfolios, and we’ve started rating some of those. Then you have the smaller advice groups who have massive funds under management through aggregation who are exercising their own investment thinking through SMA portfolios which helps them with their efficiency and client engagement.

“Although we don’t often rate a lot of SMAs in the private space and the smaller advice businesses, there’s solid rationale and value for those advice businesses to seek a rating.

“By seeking an external rating on that solution, that gives an independent external assessment of the capability and processes, the structure of the portfolio and whether it is valid.”