SMAs lacking in functionality

The first set of research performed on the Australian separately managed accounts (SMA) market has shown the products currently on offer need to improve their functionality before the majority of financial advisers will begin to recommend them.

The “2006 SMA Report: Technology Assessment and Benchmarking” was conducted by research house Investment Trends, and principal Mark Johnston said: “For the earlier adopters of SMAs it was about the tax benefits and it wasn’t about bells and whistles, but for the vast majority of advisers there needs to be a very high level of functionality in place, such that these products are reasonably easy to use and fit within their existing business model before they’ll give them a try.”

One particular area that SMA providers need to address is customer service according to the survey.

“When we did the ‘secret shopper’ email exercise we found a number of SMA providers either didn’t reply or took too long to reply, or only replied after we followed them up several times,” Johnston revealed.

“Some even provided out-of-date PDSs [Product Disclosure Statements] and documents, and we had to go back and point out that these were the wrong ones and get the correct ones sent,” he added.

The report also found price was not an accurate measure of the level of functionality an investor would receive from a provider, with the most cost-effective offering delivering 30 per cent more functionality than the most expensive product.

Another concern highlighted by the research was the limited number of investment options available though the use of an SMA compared to that of a managed fund or platform. Current levels vary between one and 24 choices.

Johnston said a large degree of advancement was being made in this area already, but hinted at two developments the market may see in the near future.

“There are really two solutions. One is for people to develop a platform of SMAs. That is, putting a whole raft of SMAs under one product … or just to offer SMAs within an existing platform structure, and we expect that to begin to happen fairly quickly,” he said.

The survey assessed eight SMA products across 300 functionality dimensions, with six key categories analysed including products, transactions, reporting, access, level of customisation, and integration.

The report rated the BlackRock Merrill Lynch Customised Portfolio the best in terms of overall performance, with Asgard and Hyperion coming in equal third in regard to functionality.