11 September 2020
The investment landscape today is presenting big challenges for advisers. In recent weeks, we have seen wild swings in markets, day by day, and even whip-sawing intra-day. While many things are difficult to predict, one thing is clear. Managed accounts (SMA) make more sense than ever. Don’t believe us? Here are seven reasons that might change your mind.
- Compliance risk with investments: From our extensive visits and meetings, we’ve seen that many businesses operate various model portfolios. What this typically means is that there are clients with asset allocation mixes that have drifted from target weights, and funds or investments that have been added or inherited over time and which the advice firm might not be across day to day. In this climate, it would not be unforeseeable for there to be a rise in product failures which can lead to client complaints, or even the need for client compensation. By adopting an effective managed account strategy, you are protecting your business because all your clients are on the most current model, constantly reweighted, with the underlying investments constantly monitored by experienced investment professionals.
- Improved outcomes through swift portfolio implementation: Now this remains to be seen in the current environment. However, in theory, during times when market events, pandemics and asset dislocations occur, as a manager, or as an adviser, you need to be able to move quickly. Whether that is to adjust tactical asset allocations within your investment mandate and policy, or even capitalising on buying opportunities when valuations adjust, there can be no doubt that the ability to manoeuvre quickly will enhance investment outcomes for clients. We’ve spoken with businesses that were experiencing turn-around times of up to four weeks trying to execute portfolio changes on client portfolios via ROAs, which in the current volatile market is a massive risk and potential opportunity cost. Having a proactive managed account solution where all clients can be treated equitably, and portfolio execution occurs swiftly is a key feature of managed accounts (SMA).
- No RoAs required to make changes: We are in an environment of social distancing, which is moving closer and closer to social isolation. So how are you going to be able to get to your clients? Virtual meetings have become more commonplace for many, granted. However, the managed account structure means your client portfolios are constantly being monitored, adjusted, in real-time by investment professionals. While you are focused on calming your clients and looking after your business and health, we are watching your investments. So even if finances are not people’s top priority right now, they can be assured that they are being managed proactively.
- More time to focus on clients: At very uncertain and fast-moving times like this, people need reassurance. Clients don’t necessarily care what you know, they want to know that you care. With our total focus on the portfolios, it frees you up to talk to your clients, re-affirm the long-term strategic plan and ideally improve client retention by being there for them in difficult times. That is what your clients will remember, on the other side of difficult periods. While we are focused on the portfolios, you and your staff can pick up the phone and be there for your clients.
- Investment communication: The below article is our most recent communication, the top of the article is already fairly outdated given how quickly the markets are moving, however the second half is still relevant. Our portfolio managers have been continuing to work on the portfolios, communicating changes and using this opportunity to adjust portfolios for the long term. We have also been providing episodic information to specific advisers, with specific questions. In turbulent times, being proactive and timely with communication is more important than ever. www.elston.com.au/after-a-blur-of-uncertainty-what-should-we-focus-on/
- After tax management: There are strategic levers that managed accounts deliver for advisers. An example of this is the ability to manage after tax outcomes for clients. This might be a time to review tax positions with the clients accountant, and use this opportunity to crystallise some capital losses to offset gains, or future gains, and reduce the tax that a client pays (speak to your platform BDM about how to execute this strategy as tax management functionality can vary by platform). While not necessarily quantifiable in terms of investment performance, this is a distinct advantage of the managed account structure and an opportunity for ‘platform’ or ‘adviser’ alpha.
- Transparency: We have certainly felt the ‘double-edged sword’ effect of transparency over the past couple of weeks. However, by and large, advisers and clients have been comforted to know that they are invested in large Australian companies, with strong balance sheets, companies that people continue to shop at, bank at, buy their energy from. Even though the value may have dropped, these businesses continue to trade and aren’t going anywhere. We are happy and quick to respond to specific holding queries and provide the information required on the adviser resource centre for our partners.
At Elston, we are here to help, we are open for business and we have the capability to work remotely. If you would like to know more about either managed accounts in general, or the way Elston construct and manage portfolios, please contact us. We run our off-the-shelf strategic asset allocation models on most major managed account platforms and have the capability to customise for your business should this be a strategy you are looking to pursue.
Finally, this is also a huge opportunity to promote advice. Most advisers we speak to will create a moat, or buffer for their clients for exactly this sort of period. Those people will be feeling a lot more comfortable during this difficult period, than those who unfortunately have not sought advice and sadly will not have the same foresight or buffer.
With uncertainty, comes opportunity. Recent events clearly reinforce the benefit of adopting a managed account (SMA) structure, and the value of good advice. The pandemic has also shown us that keeping our friends and families safe is the most important thing of all. From everyone at EAM we wish you all well. You watch your health. We’ll watch your investments.
If you want to know more about SMAs and how they can help you and your clients through this uncertain time, don’t hesitate to give us a call on 1300 ELSTON or email our distribution team on firstname.lastname@example.org