How can planners prepare for the next crisis?

Australian-based advisers tell us they are desperate to deepen their relationships with their clients. But with so much flux in the industry – from regulations, examinations, and industry consolidation, finding the time to do so can seem impossible.

The interpersonal side of advice can be the most valuable aspect of a successful adviser/investor relationship. Advisers who succeed in developing their relationships can disrupt the status quo, and better align their services with clients’ goals. An added benefit is that this can also make the job more enjoyable; and optimising the client experience can reframe the perception of value in the eyes of the client. Done well, the approach can pay dividends: increased client retention, reduced attrition, and a stronger referral system.

But too often, when advisers are tied up in investment management, client-facing activities drift down the priority list.

One way advisers can improve their client offering and relationships is by outsourcing part or all of the investment management through managed portfolios.

According to the latest SPDR ETFs/Investment Trends 2021 Managed Accounts Report, close to half of all financial planners are doing so, using managed accounts.

Model portfolios implemented via a managed account often employ a diversified investment approach to target a particular balance of return and risk or portfolio objective. The collection of assets is attributed to the underlying investor and continually managed by professional investment managers. Often these structures follow institutional-style investment methods.

Managed accounts can save financial planners 13 hours per week, on average. This time saving allows financial planners to spend more time helping clients focus on their financial goals and contact existing clients.

But for the other half of advisers, who prefer not to use model portfolios implemented via managed accounts, there are a few myths circulating about whether these structures will or will not improve the client offering.

Myth: I will lose control of my client’s investment portfolio

When we speak to advisers about outsourcing investment management, it can sound counterintuitive. After all, investment management is one of the reasons a client comes to see a planner and by many planners is perceived as the planner’s core business. But while outsourcing portfolio management requires a certain amount of delegation, it doesn’t mean “hands off” or a loss of control over the client’s affairs.

To the contrary, outsourcing some aspects of investment management can increase a planner’s operational efficiency. And in times of market volatility, planners who use managed accounts have more time, can work with experts to manage the investment strategy and are operating with less operational risk, ultimately giving them more control and confidence in their investment process.

Myth: The client experience will be less personal

Advisers worry that outsourcing investment management to a third-party money manager will make the client experience less personalised.

But according to the latest study on Australian advisers’ use of managed accounts, 68 per cent of users note that managed accounts have allowed them to shift their value proposition to focus more on client goals and education.

And this is a pattern we are seeing globally. Based on our own global research, investors with assets in model portfolios told us they feel better about their adviser relationship and are more satisfied with the wealth management experience. This is because clients with assets in model portfolios usually receive more services from their advisers than clients of advisers not using model portfolios.

Myth: It means opting out of investment responsibilities

Outsourcing does not mean opting out of investment responsibilities.

Advisers still go through a rigorous process in selecting investments that suit each client’s circumstances.

More than one-third of advisers (36 per cent) said outsourced portfolio construction enabled them to benefit from repeatable and reliable investment processes, providing time and flexibility, free from ongoing trading and rebalancing responsibilities.

Planners who outsource investment management can have a greater focus on client financial and lifestyle goals and better respond to unexpected events. The structure of these solutions, supported by technology platforms that allow for automation, equates to efficient modifications and rebalancing of portfolios.

The broader macro-economic environment like the rising risk of inflation, and downward pressure on traditional fixed income assets, mean financial planners need to have time to field worried calls from clients, explain the situation at hand, give them full attention, adjust goals if needed and even readjust business operations. Portfolio rebalances can also be made efficiently through these structures.

During times of distress, managing client emotions and supporting with their understanding are paramount. Those who use managed accounts for a greater portion of total client assets are more likely to have observed positive changes to their value proposition.

Sinead Schaffer is a State Street ETF model portfolio strategist based in Sydney.