The scalability benefits of managed accounts

The adoption of managed accounts is essential for financial advice businesses to achieve scale, two experts argue, otherwise advisers risk “limiting their growth”.

The Institute of Managed Account Professionals’ (IMAP) Advice in Action 2024 conference unpacked how advisers could reach scalability as current operating costs climb higher.

Speaking at the event, Kyle Lidbury, head of investment research at Perpetual Private, pinpointed managed accounts as a key avenue for advisers looking to scale up their practice.

“You can consolidate your best ideas and ensure that you’re bringing the benefits of scale, whether that be through rebates or a negotiated fee with asset managers, to deliver a cheaper, more efficient solution,” he explained.

“You can see the benefits – increased time with clients, increased revenue per client, increased number of clients per adviser. Firms that have implemented managed accounts really well have achieved those benefits.”

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Managed accounts continue to grow in popularity, with 56 per cent of advisers currently using them and a further 19 per cent saying they are “potential users” of the vehicle, according to an Investment Trends and SPDR research.

With several factors making it difficult for advice businesses to run efficiently and cost effectively, such as increasing regulatory compliance and onboarding challenges, Lidbury encouraged advisers to remove obstacles to scalability in order to grow their practice.

“The opportunity that managed accounts present is absolutely there. It means spending more time with clients and more time advising. Being able to outsource [the investment selection process] is the opportunity to make your business more scalable. It means that you’ve got an automated portfolio management function to roll out your ideas quickly and efficiently,” he added.

For practices that haven’t adopted managed accounts, Lidbury warned how this could impact clients, such as long delay times between an investment change being made versus when it’s reflected in the client’s portfolio.

“If you’re not running a scalable practice, it’s not just limiting your own growth, but it’s actually also opening yourself up to questions from your clients as well.”

Speaking to Money Management, Toby Potter, chair of IMAP, largely agreed with Lidbury’s sentiment.

“The benefits of scale that managed accounts bring is removing the need for records of advice (ROAs) for every client, in the event that you want to make a change to portfolios across multiple clients,” he described.

“For the licensees, the benefits of scale that managed accounts bring is the certainty that comes from knowing that portfolios for clients of similar characteristics are being managed professionally and in similar ways.”

Similarly, Marc Hraiki, executive director of adviser sales and service at Lonsec, noted the immediate efficiencies that managed accounts bring to advisers.

“It’s difficult to be so nimble when you’re doing it yourself; it needs an ROA for each client when you make a change. The client then needs to be contacted and agree to the change, it needs to be implemented and that can take two to three weeks each time. Whereas in a managed account, the manager makes the change and it affects all clients in that portfolio and off you go,” he said.

The IMAP conference also highlighted cultural alignment and scalability to last long term as two key criteria for advisers when selecting the right outsourced investment provider.