What to know before going bespoke with managed accounts

With a rising number of licensees opting for bespoke managed accounts, the Institute of Managed Account Professionals (IMAP) has shared what firms need to know before going down the custom route.

While off-the-shelf models remain the dominant type of usage at over 70 per cent, just over a third of respondents to a State Street/Investment Trends Managed Account report said they were using models which were custom-built for the licensee or practice. 

Investment Trends chief executive, Eric Blewitt, said: “Some may be starting with off-the-shelf versions, but then they have their own in-house views based on their clients, so they are modifying them based on these views or specialisms which their advisers are encouraged to use.”

Their reasons for doing so can range from client demand for customisation, through to building scale, and enhancing the service and value proposition of the business.

Appearing on an IMAP webinar, a panel discussed the decision behind opting for custom solutions and how they can be embedded in a practice.

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Mark Smith, head of adviser services at Elston Asset Management, said: “Advice businesses often go down the tailored path because they can’t find an off-the-shelf solution that aligns with their investment philosophy. Being able to tailor strategic asset allocation (SAA) to a business’s particular needs is important, which is not always available in the solution you’re looking for. There’s also branding and price, which can lead a business down the tailored path.

“For some advisers, strategic advice is their core, while for others their value proposition has been built around investment management. So, you need to explore the motivations and understand the key drivers for a business wanting to go down the tailored route.”

John Burton, head of sales at Lonsec, added: “Advisers want to tailor strategies for their client base. They want to improve risk management and want control of the portfolio, but without the execution. This makes a tailored solution ideal for these advisers.”

All three panellists described how implementing managed accounts can take a lot of work for a licensee, with some large players finding it hard to get buy-in from all their advisers. It can take up to two years for large firms to achieve take-up of managed accounts by 80 per cent of clients, but smaller ones can achieve the same in six months.

David Hutchison, general manager for managed portfolios and investments at North, said: “I’ve seen practices that have been fully allocated in 12 months, and others that have taken between three and five years. I’ve seen businesses with hundreds of millions in funds under management but only have a minor allocation to managed accounts because they spent too much time on the investment component, and forgot about making the rubber hit the road on the implementation and change management side.”

Once a licensee has achieved successful uptake of the products, it will be critical to them to define what they want to do with the extra time obtained. The State Street/Investment Trends Managed Account report found advisers said they saved 23.9 hours per week, which allowed them to see more clients and focus on client goals.

Burton said: “A 70–80 per cent take-up by clients will provide a 20–30 per cent uplift in capacity within the business. However, it’s what a business does with that capacity that’s important, which is why businesses need to be clear about the outcomes they are seeking to achieve.

“If they’re seeking growth and they want to take on additional clients, then there’s an extra 20–30 per cent in capacity per adviser to achieve that, and those clients will go straight to profit. However, if it’s about taking pressure off the back-office, or the business wants to integrate a merger or acquisition, then they’ve got the additional capacity to do that. So, it’s important that a business is clear on the outcomes it’s looking for.”