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How research houses reaped benefits of managed accounts evolution

By Mike Taylor29 June 2021

The established research houses and consultants are emerging as significant winners in the continuing evolution of the managed accounts sector as financial advice firms make judgements about the underlying economics and the benefits of outsourcing.

At the same time as leading research and ratings house, Lonsec has confirmed a significant increase in its managed accounts business, Institute of Managed Account Professionals (IMAP) chief executive, Toby Potter has pointed to the reality that while advisers still want to offer their own portfolios, many recognise they lack the skills required to do so internally.

Potter said that not all financial planning firms were resourced to offer managed accounts, but even large dealer groups such as Count Financial have opted against an in-house offering.

The chief executive of Count Financial’s parent company, CountPlus, Matthew Rowe told Financial Newswire that notwithstanding the fact that Count had offered a managed account capability prior to its acquisition by CountPlus it had been decided to outsource to Morningstar.

“We took the view that it required a major commitment in terms of financial resourcing and expertise which was better handled externally,” Rowe said.

It is a measure of the how the reality of cost and technical expertise has impacted the managed accounts market that Lonsec’s Robert Hardy said the firm had seen really significant growth in its managed account offerings over the past 18 months.

“Our inflows have grown about 400% on a monthly basis,” he said.

“Where we previously found a number of practices looking to do their own, they are increasingly seeing that it is not worth the compliance risk to do so and that they can really benefit from the operational efficiencies (which permits growth and more time to spend with clients) by handing the management over to portfolio construction experts, such as ourselves,” Hardy said.

Notwithstanding the strong growth in its managed accounts business, the company believes there is potential for further growth.

“We still feel that there is a fair way to go and significant further growth is still possible,” Hardy said. “The competition is pretty fierce, but there is much more capacity in the market for the share in MA’s to increase and I think all parties potentially will benefit from that.”

Zenith Investment Partners chief executive, David Wright also pointed to an increase in adviser groups wanting to move from their own paper-based models towards greater efficiency and compliance.

“Sometimes, not always the groups have been managing these paper-based portfolios internally and have decided it’s too hard and so outsourced to groups like us. Mostly through, they are already paying an investment consultant and want to progress the portfolios to a managed account structure for the greater efficiency and compliance of trading execution (rebalancing and portfolio changes for all clients in the portfolios at the same time),” he said.

“In our experience there are not many dealer groups running their own managed accounts as there’s real challenges in them getting through the due diligence process of both the RE and Platform Governance process for approval without an investment consultant.”

Potter said that it was not just the ratings houses such as Lonsec, Morningstar and Zenith which had benefited from the decisions being made by financial planning groups, but that institutional players such as JANA, Willis Towers Watson and even some industry funds players had also looked to pick up a slice of market.

“And that is on top of the proliferation of consultants who have entered the space,” he said.

Potter said that notwithstanding the growth experienced by players such as Lonsec, Zenith and Morningstar there were still financial planning practices willing to get involved, particularly those which had the scale necessary to properly support such an offering.

Mike Taylor

Mike Taylor

Managing Editor/Publisher, Financial Newswire

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