IMA investors in the driver’s seat

It might not seem like the individually managed accounts (IMAs) market is bursting at the seams, but that has not stopped a range of groups pushing into the sector, with more keen to follow in their footsteps.

At the moment, it is estimated there are around 10 providers of IMAs in the Australian market.

But that figure is set to grow, with at least two financial services groups looking to offer the products in the near future, and one existing group planning to offer a retail version to medium level investors.

One of the recent entrants into the market is Clime Asset Management, which took a punt on the sector in February last year.

In the past 18 months, Clime has grown the funds it manages in IMAs to $20 million.

Other groups that have seen potential in the sector in recent times include Leyland Asset Management and Macquarie, which has its Private Portfolio team tapping into its large adviser network to generate inflows into its IMAs.

So what is it about IMAs that have these, as well as other groups, excited?

The general consensus is that IMAs have two major advantages over managed funds: capital gains tax management and full utilisation of franking credits.

“With the initial enthusiasm for this product, we think there is still huge growth potential,” Leyland Asset Management managing director Charles Leyland says.

“We particularly think time poor investors who have traditionally used managed funds will continue to shift to the IMA structure, as will self-managed super funds who want control over, and direct ownership of their assets, but still need the investments managed by a professional.”

Clime Asset Management’s managing director Roger Montgomery agrees.

Montgomery also believes IMAs can be cheaper than managed funds, despite perceptions otherwise.

“If you offer an IMA with a high fee it won’t be attractive. We charge a 1 per cent management fee,” Montgomery says.

At present, IMAs only need to appeal to wealthy investors; those willing to part with in excess of $100,000.

However, if Macquarie’s plan to offer a retail version of the investment class comes to fruition this may all change.

Director of Macquarie’s private portfolio management Martin Carbb says the group is looking at offering a retail-focused IMA product.

“We haven’t worked out the bells and whistles yet,” Carbb says.

“We would still offer managed funds. The idea is that investors can transfer into a portfolio, but whether or not we allow a tax overlay is something we need to work out,” he adds.

The Count Financial dealer group is also looking into the possibility of offering IMAs.

Another group interested in IMAs is Oasis Asset Management.

Oasis managing director Bruce Tustin says the reason for his group’s interest is the growing demand for investors to gain access to direct equity products, particularly in a platform structure.

“We’re just in the process of implementing the software that will be offered through the platform,” he says.

“We’ll provide the reporting and tax structure for the investment manager to trade the stocks and use our system to provide settlement and portfolio reporting and tax reporting,” Tustin adds.

So if groups like Oasis are convinced the sector is worth a shot, why haven’t IMAs caught on more broadly?

The consensus appears to be it is because of the way many financial advisers view the sector.

Tustin says most planners just aren’t interested in choosing stocks themselves.

“If you look at the American market, the IMA was developed by the stock brokers. Whereas in Australia, stockbrokers haven’t embraced it. Australian financial advisers’ history comes from managed funds rather than from direct shares,” he says.

Carbb is willing to go a step further.

He believes financial advisers may steer away from IMAs because of their transparency.

He says there is more work for the financial planner because their clients can see every investment transaction.

However, not everybody believes transparency is an issue.

Montgomery says it can have its advantages, particularly as a way to foster client loyalty.

“If the investor understands the investment philosophy of the manager, then they’ll stick around for the long term,” he says.

The sentiment is backed up by Leyland.

“We have found that clients and their accountants and financial planners embrace the philosophy due to the simplicity, transparency and distinct benefits of professional management with individual ownership of the assets,” Leyland says.