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Advances in technology help to give clients more of what they want

Separately Managed Accounts have experienced a surge in popularity due to a collection of serendipitous factors:

  • Impact of FoFA on planning businesses - the need to generate revenue and increase business efficiency
  • Technology advancement of platforms - driving efficiency, scalability and cost savings
  • Client awareness and demands increasing - Need for greater transparency, control and personalisation

The initial appeal of the SMA solution was the tangible benefits it offered investors; namely, increased control, transparency, and tax efficiency. However, this focus has shifted of late, and now the discussion seems to centre around business efficiency, and for some, generating additional revenue through SMA model fees via “badged” offerings (white-labelled professionally managed model portfolios under your own brand).

Although these factors are important, the risk to financial planning practices of such an inwardly focussed strategy is that it ignores one of the biggest opportunities the SMA structure affords – a better client engagement model. The PwC 2016 Global Fintech report ‘Blurred Lines: How Fintech is shaping Financial Services’ states that the investment industry is “being pulled into the vortex of vast technological developments” and that disruption is being fuelled by customer centricity:

Fintech disruptors focused on customer needs

As clients are becoming accustomed to the digital experience offered by companies such as Google, Amazon, Facebook and Apple, they expect the same level of customer experience from their financial services providers. FinTech is riding the waves of disruption with solutions that can better address customer needs by offering enhanced accessibility, convenience and tailored products. In this context, the pursuit of customer centricity has become a main priority and it will help to meet the needs of digital native clientele.

The Fintech sector is clearly focused on finding client problems and solving them. Why aren’t financial planning firms doing the same?

For one, it isn’t always easy for financial planners to change the way they do business. The reality is that value propositions are often based on the business owner’s personal drivers or simply on what the planner enjoys doing, such as stock picking or portfolio construction. These may be good for the financial planner, but they are not what today’s investors value. Unfortunately, businesses often create their value propositions first and then try to find clients to match, when the better approach would be to identify a client pool with a problem and build a value proposition that solves it.

Secondly, some advice practices are still stuck in an outdated client segmentation model, the ‘ABC’ methodology, where practices offer a premium service to the largest fee payers and then a tiered dilution of those services based on revenue generated. This model is built around what the practice can afford to do for the revenue the client generates, and service levels are set without understanding what the client wants or is willing to pay for. This means that often practices will construct portfolios of equities for higher paying clients (such as SMSF trustees) but for the average mum and dad they’ll simply use managed funds. To be fair, this is due in part to traditional technology platforms being unable to deliver a value proposition that is both scalable and bespoke.

Technology advancement improving client outcomes

So, how does today’s planner offer investors greater control, more transparency, accessibility to information and a personalised experience without damaging its revenue or efficiency? That’s where SMA platform technology comes to the rescue.

“With the right technology partner you can deliver better client outcomes, increase your customer satisfaction and increase referrals.”

Technological advancement in platforms has never been as significant as it is now, and change is afoot whether or not all incumbents are comfortable to come on the journey. We can now offer tailored value propositions which were previously too cumbersome for a practice to manage across large volumes of clients.

New SMA technology advancements offer a number of advantages that can assist in advancing a planning practices client engagement model, such as;

Increased cost efficiency

  • Netting – daily trading completed at a custodial level rather than portfolio level, reducing unnecessary brokerage costs
  • Platform costs cheaper due to streamlined processing

Transparency and ownership

  • Full transparency of underlying assets
  • Ability for lower balances and younger clients to own direct equities
  • Beneficial ownership of underlying assets allowing CGT optimisation

Increased client control and engagement

  • Automated portfolio customisation
  • Ability to offer bespoke solutions at a client level but maintain scalability
  • Real-time investing experience and awareness
  • Reporting can be specific and timely to maintain engagement

Those practices that engage SMA technology have a distinct advantage over the rest of the market that is slower to adapt. Importantly, it is the combination of both the right SMA model and the right technology that will drive success.

Praemium is a market-leading provider of investment platforms, portfolio administration and reporting. Having pioneered the provision of SMA platform technology in Australia in 2005, Praemium is now one of the largest managed account providers in the country and manages and administers over $100 billion across its platforms globally.

Find out more about on how Praemium can empower your business. www.praemium.com.au


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