How to implement managed portfolios in your business

Mark Smith is the Head of Adviser Services at Elston Asset Management, one of Australia’s leading investment management firms specialising in managed account solutions.

We caught up with Mark and asked him how advisers should go about making the transition to managed portfolios. 

What should advisers consider when starting out on their managed portfolio journey?

I‘d recommend asking five key questions.

1. How do you articulate your investment philosophy to your clients? Whether you adopt publicly available or customised managed portfolios, it’s important the solution complements your investment philosophy.
2. Do you want to be actively involved in investment decisions? Some advisers prefer to focus on strategic advice and client relationships and engage more at arm’s length with external investment managers, while others want to be involved in day-to-day investment management. If the latter, do you have the time and resources to execute this effectively?
3. Are you running multiple wrap platforms? Most advisers we work with have a primary, such as North and secondary wrap platform, so ideally your preferred solution is available across multiple platforms for maximum efficiency.
4. How will you manage investment communications? Managed portfolios provide an amazing opportunity to enhance client engagement. They’re highly transparent so clients see investment transactions in real time. Proactively communicating to clients can help build trust and show their investment portfolio is being actively managed.
5. How will you use managed portfolios across your client segments? The number of publicly available managed portfolios has grown significantly, so there’s less need to add satellite investments to achieve a specific outcome. Consider how ‘fit for purpose’ the solution is for your client base and how much you need to get involved – the more tailoring, the less efficiency gains you’ll generate.

Are there any areas advisers typically overlook?

You need to take your whole practice on the journey. Often the move is driven by one or two advocates, but it’s important everyone, including support staff, understands how this new approach will benefit clients and the practice. Otherwise, you’re likely to get resistance to change, inertia and slower take up.

Also, advisers building their own managed portfolio via platform SMAs often overlook the fact it’s a new investment product with its own performance track record. With heightened regulatory scrutiny, we expect to see increased pressure from Trustees if the portfolios fail to deliver their set investment objectives.

How long does it usually take to start seeing the benefits?

Although advisers usually start saving time straightaway through reduced ROAs, portfolio management and improved reporting, it’s generally the first yearly review cycle when benefits start to show.

Industry research shows advisers can generally save up to 15 hours a week by adopting managed portfolios although it can vary depending on factors such as advice technology and investment management approach.  

What’s the best way to take clients on the journey?

Successful practices put a lot of work into educating clients around features and benefits alongside the risks. We work with practices who use educational videos to explain not only the concept of managed portfolios but also the role of external investment managers.

Some advisers like to introduce the concept in meetings or newsletters, before expanding in more formal annual reviews. Others use a more focused approach over a shorter timeframe. It really depends on what works best for you and your clients.

How can advisers articulate the value of managed portfolios to their clients?

Keep it simple and explain what’s in it for them. Too often our industry focuses on the benefits for advisers, but there are some fantastic potential client benefits:

• proactive portfolio management
• improved tax management
• enhanced reporting and transparency
• lower investment costs.

I like using the metaphor of mobile phone technology. Twenty years ago, everybody had Nokia 3310s, which were great – long battery life, almost indestructible and the ability to call and send SMS messages. Nowadays, we all have smart phones which can do all of that plus video call a person on the other side of the planet, monitor your health, play music and videos, and do internet banking.

Managed portfolios are similar to smart phones – they’re an evolution in investment technology, designed to deliver an improved experience for investors and their advisers.

Is there anything else that could help advisers implement managed portfolios?

One of the biggest challenges is managing the positioning, particularly if you’ve been more focused on investment than strategic advice. Rather than see it as handing over the keys to the car, successful advisers are embracing the role of Chief Investment Officer for their clients, working closely with external investment experts to bring an institutional level of investment management to their retail practice. Access to an experienced managed portfolio specialist BDM is also invaluable, particularly for sharing best practice and helping you negotiate any speedhumps and roadblocks.

Although they’re a fantastic investment vehicle, managed portfolios aren’t a ‘silver bullet’ that will solve every challenge in your practice. But if implemented successfully they’ll add value in terms of client engagement, investment efficiency and hopefully improved investment outcomes.

Thinking about making the transition? Download our introduction to managed portfolios.