Managed account use on the rise, but terminology is thwarting progress

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A recent research project has found that the number of financial advisers recommending separately managed accounts (SMAs) has reached its highest level ever in 2019. Nearly twice as many advisers are recommending managed accounts compared with five years ago. The trend is set to continue, the report says.

This uptake is in spite of the fact that education levels remain low regarding managed accounts, with 80 per cent of potential users saying they have a basic or no understanding of the solution, and 40 per cent of advisers saying lack of client education was a barrier to entry.

Terminology remains inconsistent amongst providers, perpetuating the educational shortfall. Definitions vary for structures, with interchangeable lingo. Each platform uses different terminology.

Key findings in the report include:

  • Thirty-five per cent of study participants recommend managed accounts, up from 30 per cent in 2018

  • Forty-nine per cent of these advisers say there has been a reduction in time spent on administration and compliance

  • Sixty-eight per cent of financial advisers currently use SMAs on platform to implement managed accounts

  • About 75 per cent of planners using an in-house Managed Discretionary Account (MDA) chose this structure over SMAs because of the flexibility and control it offers

  • Potential users of managed accounts have a strong appetite to build their understanding

  • Perceived benefits of managed accounts includes improved investment performance, transparency, enhanced client engagement, cost effectiveness and less administration

  • Client engagement has increased after using managed accounts, say advisers

  • Advisers enjoy that the suite of product selections allows aligning the SMAs with adviser business needs

  • Eighty per cent of advisers who use SMAs have directed new business to these accounts in the past year

  • Those advisers who recommend SMAs report that 31 per cent of their funds under advice are currently in these products, on average, with predictions of this number growing to 52 per cent by 2022

The research was conducted by State Street Global Advisors and Investment Trends.