Author: Phil Pilgrim, General Manager, Partnerships and Distribution - Implemented Portfolios
When you look back at the history of financial advice, investment management has an interesting story to tell and it's a story that has still got some chapters to go. Why? Aside from the obvious and continual transformation blazing through the entire industry, Advisers are still burning too much time administering clients' investments and it's time they can't afford to waste.
Time is the number one challenge for every Adviser. In a sector with growing education requirements and increasing compliance burden, Advisers just simply don't have enough of it. What this is creating is the desperate need for Advisers to be really clear about what they are going to spend their time doing and what they're not.
The best way to make these decisions is to think about all the tasks undertaken in your advice business and define which ones are "high value" as opposed to the ones which are "low value".
As an example, the highest value activity that an Adviser can undertake is client-facing time. Research suggests that the most successful advice firms spend 70% of their time carrying out client-facing activities (emails to clients, phone calls, face-to-face meetings, video meetings). This is further reinforced by research which tells us that this activity is what clients want and value most from their Adviser.
Investment Management on the other hand is one which could actually be perceived as classic “low value” activity for an Adviser.
Why?
Because an Adviser cannot control the market. No one can. Therefore, you cannot guarantee or control the outcome, not to mention there are also specialist professionals that do this all day every day who can consistently and more efficiently carry out this task on your behalf.
So with that in mind, let's examine the evolution of outsourced investment management. Where are we now and why are Advisers still not saving as much time as they could be?
Remember back to the first model portfolios, where for example an Adviser picked 7 or 8 managed funds out of the market and applied the right percentages to each to create 5 or so versions to suit the various client risk profiles. From there, risk profiling determined which version a client would adopt. Simple, but it was the Adviser at the centre of choosing which funds to use and therefore assuming responsibility for returns and the administration of any changes, including ongoing rebalances. Then Advisers started to outsource the creation of these models to external experts who also made changes as required, introducing new funds to replace underperforming ones etc. This removed the onus on the Adviser to make and take responsibility for fund choices but still left them with the burden of too much ongoing administration to keep the portfolios up to date.
More recently Managed Accounts have risen to fame with the latest research finding 3 in 4 Advisers are using Managed Accounts in some form of another to manage clients' investments. This surge in popularity put Separately Managed Accounts (SMAs) in the spotlight. Managed Accounts assume the same approach of using pre-built models but also give clients greatly improved transparency and the additional benefits of holding assets directly. But are these types of managed accounts doing enough to free up Advisers' time?
I believe the answer to that is 'No' and my reasoning lies in how Advisers deal with individual client needs or preferences.
This is precisely why Individually Managed Accounts (IMAs) are becoming increasingly popular. An IMA is managed at an individual level rather than an SMA which effectively operates much like a transparent managed fund with the bonus of direct asset ownership. With an IMA each account can be tailored down to the individual level without necessarily triggering the need for ongoing admin and advice documents in order to maintain them. IMAs can be setup with specific instructions (rules) that are then administered on behalf of the Adviser and client as agreed without the usual ongoing Adviser effort. When it comes to rebalances and remodelling, IMAs also treat each client's holding individually, allowing the portfolio manager to make adjustments in the best interests of the individual rather than a blanket change across all clients. This is because IMAs also have the ability to treat 'new money' in a client's holding differently to 'old money'.
As the demand for this type of personalised portfolio management increases, as well as the need for time efficient investment management solutions, the rise of the IMA as a preferred investment vehicle has continued and it's logical to see why.
In an industry where Advisers have never been so time poor but simultaneously their clients are looking for a more personalised service than ever before, Individually Managed Accounts just make sense for both Advisers and clients.
When it comes to outsourcing investment management, I'd challenge Advisers to seek the solutions that save them significant time whilst also placing the client at the centre and allowing them an uncompromised individualised investment experience. This in turn will then give Advisers more time to help their clients define and live better lives.
To read more about how Implemented Portfolios helps Financial Advisers gain back more time, through our Individually Managed Account Service, click Here.
Hear first hand from the team at QSA Financial Services, what their partnership with Implemented Portfolios has meant for their business.
Date of Production: June 2021
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