The bastardisation of managed accounts

I have spent the past months reading and listening to all forms of views of what managed accounts are and how they will change businesses.

But under this current industry approach, I believe advisers are going to be left very disappointed.

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I have been fighting for some time for advisers to receive a better deal, focused purely on creating a better outcome for all where the product’s removed, and service became the main game in town.

I have met more advisers around the world than most and have spent countless hours trying to understand what makes the great ones great. They have worked out a few simple things.

They are in the business of exceeding clients expectations around service, are technology-enabled and their investment service is built around consistent philosophy where technology – not people, paper and product – drives the delivery.

The best know that it has nothing to do with investments and everything to do with the human connection and relationship.

They know that portfolio management is a distraction that needs to be done hand-in-hand with technology. I call this the ability to ‘mass portfolio customise’ and this is the critical success factor for every advice business in Australia, not what platform you operate on.

Knowing this, I am frustrated as I hear my colleagues move their business models from an advice model that is akin to an IMA, where every client is treated individually, to an SMA where they hope the manager does a good job.

I have documented in the past why this model fails the client and the adviser test, and I have seen nothing in my travels to contradict my long-held view that an SMA is just another product.

For the record, a managed account is not a platform and an SMA is a transparent managed fund, and most top performing businesses I meet run IMAs where they treat every client individually, review them one-by-one but run this process by people and pen and paper.

I am watching advisers morph themselves into fund managers as countless platforms offer them the capability to be authorised managers.

And now we see all the major platforms offering “new and improved” managed accounts platforms and in some cases priced more than the traditional platforms for this right.

Overseas this concept of advisers becoming portfolio managers is known as representative as portfolio manager (Rep as PM) and is a model that surged in the US over the past decade only to see a rapid decline as advisers realise they have become portfolio managers.

I made the same mistake many years ago and not so fondly remember managing portfolios while looking after a baby. I remember thinking ‘what I have done?’

All I wanted to do was create a scalable approach, and now all I am doing is managing portfolios.

Essentially if the market was open, I was open. Goodbye to holidays.

Reps as PMs will soon realise their role has fundamentally changed and in the main will realise that they did not want to become PM’s but in fact wanted the removal of the time-consuming function of the portfolio manager, that they just wanted to technology enable the delivery of their investment function. This adviser will realise their value is substantially reduced, as PMs are everywhere but great advisers (asset gatherers) who love spending time with clients will be the successful ones and will be the ones paid the most as they own relationships.

We created managed accounts to help advisers technology-enable the delivery of an investment proposition where they, the adviser, was in control. It is supposed to be an environment where the product provider is removed and the adviser is in the box seat; one where the inefficiencies of the managed fund structure were removed and the client is at the core.

We wanted advisers to know that everything was done for them, taking into account every conceivable client discretion, where we, not the advice practice staff, did everything for them, and in effect removed their middle and back office functions in their entirety. We wanted to change the economics and help the advisers receive the lion’s share of the revenue the client produced instead of the other way around. We did want our advisers managing each client one-by-one on a platform and having to sit there and defend a fund managers decisions they had no control over.

The thing that makes me angry is that many advisers are falling for this new sales pitch, unfortunately, making the next mistake in their business evolution and will realise in time that what they wanted was the technology enablement of the portfolio function, not the portfolio function.

Now the counter to this argument is the temptation to deliver one model on a platform that will remove the efficiencies in an adviser’s business.

But unfortunately this sentiment is wrong. Been there and done that.

Clients are individuals and are all subtly different.

Yes, running a model on a platform will remove ROA’s but that is not where the primary cost of running a portfolio service is. The costs sit in research, meeting fund managers, handling all clients wishes, tax objectives and engaging them around that. Running a portfolio removes none of that and in fact, adds more costs as you are now a fund manager in your own right. Worse, you as the adviser are now inextricably linked to your portfolios and their performance, which is the last place you want your relationship built around.

The new wave of ‘managed account platforms’ are just new products, and I do not see the adviser’s day-to-day lives being improved one iota by making the decision to become a portfolio manager on a platform.

So the debate needs to shift, so advisers can focus on what you see yourselves doing in 10 years and where your value lies. If it is the human connection and relationship, then be brilliant at that. Partner with true managed account providers that want to remove the entire investment function from your office but in a way where you are in control, not the product.

Those advisers buying the managed account marketing spin from the big platforms should think down the road and consider the implication, like I did not all those years ago.

Your clients are individuals. Treat them individually, just enable it via technology.

Santi Burridge is the co-founder and chief executive, corporate development at Implemented Portfolios