The two significant trends in contemporary financial advice are active portfolio management and Managed Accounts. While the client and business drivers are independent, both innovations are transforming financial advisory practices.
Together they offer advisers a new level of customer-centric business practice along with a rise in business efficiency.When selecting managed accounts, it is vital to understand the business benefit in addition to the portfolio as an investment product.
Managed Accounts
The Institute of Managed Account Professionals (IMAP) highlighted the extraordinary growth in managed accounts funds under management. As of June 30 2021, FUM was $111 billion, exceeding $100 billion for the first time. Over the past three years, the accumulative average growth rate was over 20%.
According to IMAP chair Toby Potter, "there is no particular reason why this 20% growth rate shouldn't be maintained over the next two to three years. "If that growth rate keeps up, inside three years managed accounts will be a $200 billion part of the advice market."
The principal reason for the change is apparent – greater business efficiency. Those advisers who are changing to Managed Accounts report an average weekly time saving of 12.4 hours. Based on an average workweek of 40 hours, this represents a game-changing 31% time-saving. Time saved is accumulated from investment administration, researching and selecting investments, preparing ROAs, chasing client authorisations and preparing SOAs.
Time savings lower management costs and create additional client capacity. Few business innovations can boast this level of transformation.
In additional significance is the report's finding that advisers state superior client outcomes.
Risk - return targeted active portfolio management
The trend towards active portfolio management that targets specific risk-adjusted returns is driven by the inevitable change towards more informed customer understanding and a more overtly client-centric approach to managed investments and financial advice.
Today, client expectations of service tailored to their individual needs are growing across all industries. All businesses that aim to maintain a competitive advantage must answer these changing expectations.
When an adviser starts with Goals Based Advice that determines the real future financial needs of the investor, the adviser and client form an aligned view of the desired investment outcomes.
When matched with portfolio management that targets specific outcomes, goals based advice delivers a genuinely customer-centric solution to the client's financial needs – a complete Goals Based solution. It allows the adviser to move beyond risk appetite as the primary determinant of portfolio allocation to a position where the client's real future needs are identified and shaped as financial goals.
The end-to-end approach of combining Goals Based advice with specific portfolio targets brings several benefits. Advisers gain a broader understanding of client needs and then track investments towards a defined goal rather than an arbitrary risk-based allocation. When Goals Based Investing is effectively deployed, investment portfolios are actively managed towards attaining goals with the objective of less volatility or greater risk-adjusted real returns.
Goals Based Investing with Managed Accounts
Goals Based Investing finds a natural home within Managed Accounts that are correctly aligned to goals such as growth, income, volatility and timing risks. Managed services facilitate execution in a more timely and efficient manner across a more diverse range of investment choices.
The active approach is employed by managers such as Dynamic Asset, which allows for the efficient utilisation of a broader mix of asset classes, including alternative investments.
Specialist portfolio managers actively manage investment towards the defined goals of each portfolio, often colloquially referred to as 'buckets'. An adviser can, in turn, mix these buckets to precisely align individual client portfolios with each clients' goals.
Higher levels of customer focus, service and mutual understanding, as are achieved through Goals Based Advice, is the basis of excellent client relationships, retention and referral.
Aligning Goals Based Investment solutions helps deliver consistency across the business and client delivery.
Business efficiency through managed accounts provides a competitive advantage to win, grow and prosper.
That is what every adviser needs.
