Managed Accounts represent the latest evolutionary step in investing, combining the benefits of direct share ownership with professional portfolio management. Managed Accounts have enjoyed significant success in the US where assets under management exceed $US1.7 trillion (Cerulli and Associates), however they are still a relatively new product in Australia.
The FPWS Managed Account Service is a registered managed investment scheme. Investors hold each Model Portfolio separately within the "Service". You and your clients will be able to view their holdings in each individual model. These individual models will not include any personal investments. However, personal investments can be held within the "Service" in a Personal Investment Portfolio.
Separately Managed Accounts are professionally managed portfolios of directly held investments. The key defining feature of a Managed Account is that the underlying investment assets are beneficially held by the investor, as opposed to a traditional managed fund, where investors own units in a trust and beneficially ownership is not held by the individual.
The benefits of direct ownership include
- transparency,
- portability,
- increased flexibility and
- the ability to efficiently manage tax liabilities.
Another important feature of a Managed Account is the professional management of the account on a discretionary basis. That is, a professional portfolio manager is employed to buy and sell securities for your clients on their behalf, avoiding the need to continually check back with your clients for approval and confirmation of transactions in their portfolio, thus streamlining the management process.
Regular savings plan enables dollar cost averaging
One of the most effective strategies for long-term investing is dollar cost averaging - the concept of investing consistent amounts into the market on a regular basis. However, dollar cost averaging into a portfolio of shares can be difficult due to the costs and administration involved for you and your clients each time they invest. The FPWS regular savings plan makes this easy.
History of Managed Accounts
Managed Accounts have developed over a number of years in Australia beginning with Retail Funds, Master Trusts, Wraps, SMA's and now SMA's that are integrated with custodial assets on reporting platforms.
There are generally two types of Managed Accounts:
1. Individually Managed Accounts (IMA); and
2. Separately Managed Accounts (SMA)
Separately Managed Accounts (SMAs)
· An SMA is a Managed Account where the professional Investment Manager manages a portfolio mandate and implements the same investment decisions.
· An SMA is distributed via a Managed Investment Scheme (MIS) and therefore has the same sales and operational processes (for the adviser and client) as a managed fund.
· An SMA is a Managed Account where the professional Investment Manager manages a portfolio mandate and implements the same investment decisions. An SMA is distributed via a Managed Investment Scheme (MIS) and therefore has the same sales and operational processes (for the adviser and client) as a managed fund.
Individually Managed Accounts (IMAs)
IMA's are similar to the traditional discretionary managed portfolio where the client's portfolio is tailored to their individual requirements. IMAs are sold under the Managed Discretionary Account (MDA) legislation in ASIC Regulatory Guide 179 (RG 179). These are usually high value, low turnover portfolios. For retail investors, an IMA is governed under the MDA legislation and subject to individual contracts, which contain an individualised Investment Program. Investments can be held either in the name of the investor or in the name of a custodian on behalf of the investor. A Statement of Advice (SOA) is required to invest in these products and must be reviewed every 12 months. To operate an MDA the financial intermediary needs to hold an MDA licence with ASIC.
IMA's are similar to the traditional discretionary managed portfolio where the client's portfolio is tailored to their individual requirements. IMAs are sold under the Managed Discretionary Account (MDA) legislation in ASIC Regulatory Guide 179 (RG 179). These are usually high value, low turnover portfolios. For retail investors, an IMA is governed under the MDA legislation and subject to individual contracts, which contain an individualised Investment Program. Investments can be held either in the name of the investor or in the name of a custodian on behalf of the investor. A Statement of Advice (SOA) is required to invest in these products and must be reviewed every 12 months. To operate an MDA the financial intermediary needs to hold an MDA licence with ASIC.
In certain circumstance the individual investor makes the investment decision on each transaction or may authorise FPWS to execute transactions subject to an agreed investment strategy. IMAs are generally best suited to higher net worth clients and are only provided to clients with large sums of money to invest but are not necessarily limited to high net worth clients.
|
SMA |
IMA |
Structure |
Sold as a Managed Investment Scheme (creates a similar sales process to wraps and unit trusts) as per Chapter 5C of the Corporations Act 2001. |
Sold as a discretionary service, normally using a MDA licence. The selling process differs in that a separate individual MDA contract needs to be set up with additional information such as the outline of the investment program. |
Pooling |
SMAs allow for pooling of assets. This opens access to wholesale transaction rates to facilitate lower costs. |
Pooling is not allowed (under RG 179.22) to enable an investment to be made or to be made on more favourable terms. |
Ownership |
Either directly, or via custodian and may be pooled for efficiency |
Either directly, or via custodian but may not be pooled |
Customisable |
May be customised according to client requirements for tax and other preferences such as holding locked investments in a Personal Investment Portfolio (PIP) |
May be customised according to client requirements for tax and other preferences such as locking existing holdings |
Adviser Review |
No impact on SOA requirements from SMA establishment. |
Following the establishment of an IMA, RG 179 requires a review of the investment program every 12 months |