Case study: Managed accounts - David Price - Model portfolios | BT Professional


Strategy First Financial Planning

Based: Brookvale, Sydney
Active clients: 340 client groups
Offerings: Investment, risk, wealth accumulation, debt management, superannuation
Staff: 6 advisers, 12 paraplanners

Can you tell us how you found out about managed accounts and model portfolios?

We started with BT Wrap and Super Wrap and now BT Panorama. And primarily we're passive or structured investors, so heavily invested, invested in dimensional and vanguard, and have been for over 15 years. So we're consistent with that philosophy. As we've grown from 1 or 2 to 18 and 6 advisers and 300 plus clients. If you overlay that with the legislative environment we work in post-Royal Commission, even though it didn't have a direct impact on us, it certainly had an impact indirectly on us and all businesses. We were looking for efficiencies, we were looking for scale, but it was more than just that, we were looking for consistency in the delivery that we gave our clients from an investment experience. So that led and historically all of our advisers, we now have six believe in the same philosophy as part of the formulation of that investment philosophy. But we physically implemented all that ourselves. 300 plus clients, 2 reviews a year. That's a lot of implementation and a lot of reviews that we were doing to maintain our client portfolio. So we had started down that path a couple of times before and that project paused. And then we hit Covid in 2020 and the world just moved so quickly in 6 weeks, we just couldn't get to all of our clients as quickly as we wanted to. So that reinvigorated the project of looking for a solution and drive us down the path of looking for what was out there. We were already moving from BT Wrap and SuperWrap to BT Panorama as that part of that transition. So we used that as an opportunity to go and look at the market. And so we did. We spoke to BT Panorama about that. We looked at other platforms as part of our journey of looking for other investment solutions. So we looked at SMAs and we looked at managed accounts that were out in the marketplace and we also looked at the model portfolio solution that was on offer.

Was there a main problem that you wanted to solve with implementing model porfolios?

It wasn't just about scale and efficiency, it wasn't just about a benefit for us. The driver was about a more consistent and more reliable investment solution for clients. That was the number one driver. We wanted consistency across a growing client base, not just the 330 clients we have now, but hopefully the 500 or 600 clients we have in the future. That was the number one goal. Efficient, low-cost, robust, repeatable investment philosophy and outcomes for our clients.

Were there any challenges when it came to letting your clients know that you have model portfolios solutions in place?

To be honest, there were less than we thought and I think that was a result of the process we went through. If I can go back just one step we looked at SMA where we outsourced everything and they were quite cost competitive to what we were currently doing. But the problem was that we had to move away from our investment philosophy to a point and had to move away from funds that we and our clients were comfortable and familiar with. So that just didn't work for us. In the managed account solution, there weren't off-the-shelf managed accounts that use the funds that we wanted, so it was about going to build managed accounts and while there were people who were happy to try and help do that, we found that we just weren't big enough. When we landed on the model portfolio there was very little change to what we were doing. We were still using the very similar application, we were using the same investment funds, we were using the same platform and increasingly using that platform being BT Panorama, and Panorama super but we were able to use a technology that just reduced the number of manual touches that we had to make. So from a compliance perspective, there was almost no change and the pushback that we got, sorry, it wasn't even pushback, the questions that we got were around the technology how reliable, what happens if it fails, how will you audit it and keep an eye on it? So if you're not doing the trading day, what will you be doing for us? All those sorts of things, none of them that weren't really objections, they're just questions for more information and were moving to a model portfolio where we built five portfolios based on five risk profiles so they were exactly the same, so we wanted to make sure we were comfortable with all of that and then we did that. Those five portfolios allow us to meet all client scenarios, objectives, and time frames, and then the adviser still has the ability to overlay what we call a satellite investment. So something that sits outside the model portfolio that might be a legacy of what the client owns, like a direct share and something like that or it might be another investment that they're very interested in that's still within their best interest and TMD’s, but sits outside the model, so it's not part of that automatic rebalancing piece.

How was your experience when it came to implementing model portfolios?

It took a bit longer, some advisers take to new things faster than others, different advisers, different client bases, different ages. The younger advisers with the younger clients were very quick to market and quick to their clients with rolling out the model portfolio. My experience personally with my client base was that they were very responsive to what they saw as an improvement in the outcome and the reason it was an improvement is that I said, it was a model portfolio, there was automatic rebalancing, and there was robust technology behind it, there was an audit that we were overlaying on top of that. We're now having meetings with our clients that have got nothing to do with investment, investments important, particularly during volatile markets, but when markets are going up, clients are pretty relaxed and it gives us an opportunity to talk about other things. It’s a 17-year-old business, we've got clients that have been with us for a while now they're heading towards retirement. Things like helping the kids in the property, things like retiring, things like transfer of wealth, things like the estate planning, those sorts of things are becoming much more commonplace in the discussions that we're having with our clients. And so in the end, the clients are getting a much broader piece of advice.

Who did you partner with to implement model portfolios?

We didn't pay anyone to come on board. We worked with a couple of different groups that provide us intel to help us not change, but refine our application. Because, as I said, we had a strong and documented investment philosophy. There's no change in investment funds. We're still using Dimensional and Vanguard as part of that. And then rolling it out itself, BT Panorama took us through the process of how to load the models onto the system, which we did. We built five that didn't take too long. And in the process of doing that is relatively straightforward. North of 80% of our clients are on the model portfolio, and the ones that aren't, there's a couple that just won't, and that's okay. There are some that are slowly getting there because of larger costs to move, capital gains, etc. But this current market pullback will help with that shift. But all of our new clients that come onboard, they just accept it as the normal operation. So, once you get through that early heavy lifting, ongoing, it's much easier. And what we find is the time that gives back. If you think about a standard review that we used to do for investment only, it was probably somewhere between eight to 10 hours per review. By the time you had a pre-call, the client phone note drafted a checklist for the paraplanner, drafted the record of advice, sent it to the clients, and physically implemented the trades, which was about eight to 10 hours. If we're doing 500 of those a year, that's a lot of hours. Now, if we eradicate 60% to 80% of that based on automatic rebalancing and the model portfolio, we’ve worked out that it gives us about two full-time employees back. So our ability to do other things and provide greater services to our clients vastly improves.

Did you receive any support from BT to implement model portfolios?

I was very open with BT when I said I was going to talk to other platforms about investment solutions because often the investment solution is tied to a platform. Not sure how happy BT was about that when I told them, but they were open to hearing it. And I spoke to our platform, I came back to BT, I told them what I found, I told them what I'm looking for. They spoke to me about model portfolios as a possible solution. When I articulated that I didn't think managed accounts were going to suit us because of cost and we just weren't big enough, they took me through the model portfolio because they're designated experts who worked heavily in the model portfolio. That helped us build out the fire that was needed, put them on the platform, worked through, trained all the advisers and the paraplanners on how to use them and how they worked, how we related that to cash sweep, and how we chose between quarterly or monthly rebalancing, how we did regular investments.

Has introducing model portfolios benefited your relationships with clients?

The short answer is yes, but that's a work in progress because model portfolios is about consistency, robustness and consistency, and client experience, no matter who the adviser is. So what you strive for in a personal services business is that you've got six advisers. They all have a different style, they're going to have different clients and clients will be attracted to those different personalities and those different styles. But if you change the adviser, the clients should end up getting the same advice. The quality of the technical advice, the investment experience, it should all be the same. It may be delivered in a slightly different manner, but it should be consistent. And Pat, my business partner who now runs the business, he's really passionate about this. The widget that we build should be the same. How it's delivered, that's where the personality for the personal touch comes in. So model portfolios gives us that without a doubt. And that's a big improvement for our business.

What has been the effect on your business with respect to efficiencies?

In the six weeks post Covid in March 2020, we went out to every single client because that's when they need it. When the markets fall 35% in six weeks, they need to talk to us. It took us six to eight weeks to get to every client, do a review, make changes, not make changes, whatever it might have been. As far as the portfolio, that's two months for 15 / 16 people working twelve to ten call hours a day. I suspect that with this solution we would have done that within a week. Do you need any more evidence? And I'm pretty sure that within that week there would have been 5% of the errors that we made. If that (perhaps none), but significantly less errors and risk and stress. This means as an adviser, I spend much more time on the phone talking to my clients or eyeballing my clients during a period when they're really stressed and they need to talk to us as opposed to reviewing records of advice and ticking boxes and doing the sorts of manual things that we shouldn't be doing. And then we should be able to outsource to technology. And I think that's a really important segue. What we're doing is we're not changing anything we do other than employing technology to do it better. And I think that's the key to a model portfolio.

How have model portfolios helped with compliance?

Look, I'm probably the other thing too, obviously, is the compliance piece. Being self-licensed, being an independent firm, and we are independent, we meet the definition under the Corps Act. Being a fee-for-service firm, that's never been a challenge for us. But the fact that we now have model portfolios, all clients are getting the same experience. Advisers are following the same investment philosophy. There's room, wiggle room for clients, but really it’s less than 10% of our client base. So, out of 340 clients we might have, I suspect, less than 30 clients that are not on a model portfolio or very close to being a model portfolio. So that's also very pleasing. And we just don't have the human error. We're already seeing and again, it's not everyone's intentionally doing something wrong during a busy period of October when we weren't in the office. We're all on Zoom, we’re trying to sign off on trades. Virtually mistakes happen. We're doing 20 to 25 trades for clients, like 25 clients a day, multiple trades. Mistakes are inevitable. And so that was costing us money in making good on payments. No one’s fault, that’s just the way it was. We don’t have that now. So clearly that’s a straight benefit to the bottom line as part of that process as well.

Have model portfolios helped to grow your business, or any other tangible benefits?

SOAs for new clients, which always take longer, so the adviser can go out and look for a new business, or you could go and expand into other lines, and services and build products that we are, for example, so we can engage our clients in the areas of estate planning and whatever it might be (and more opportunities). So there's that benefit and the time is obvious. And we're already starting to see that. As I said, scale growing the business from 300 accounts to 600 accounts. Traditionally what you would need to do is double your workforce. You need more paraplanners, more client service people, and more advisers. Under a model portfolio solution, I suspect you need more financial planners because they're face-to-face with the client. But you won't need the same number of paraplanners and you won't need the same number of client service people, because a lot of that investment implementation on an ongoing basis to meet your ongoing fee arrangement commitments is being done automatically. So that will free up a huge amount of time as well, which leads to opportunities to grow the business.

Could you leave us with a piece of advice from your experience with model portfolios?

One piece of advice to anyone going through this journey, go through it for the right reason, and the right reason to get to improve your investment philosophy, your investment process, and your outcomes for your clients. Don't go through it just for scale and efficiency, certainly don't go through it to make a dollar and add a margin. Your job as an adviser to give advice and part of that process to have a robust investment philosophy and outcome to your clients. Your number one priority when you're going through this process, no matter who you choose. And that certainly was the thing for us. Now, there are some really good SMA solutions out there and they were cost effective, but it was a really big move for our clients. Off platform for the cost CGT transaction costs, time out of the market. But the bigger issue was there was a change in investment philosophy, not material, but enough that it was changing what we believed in, it was changing the message we've been giving clients for 15 plus years, so that just wasn't right. And then, as I said, we could manufacture a managed account that replicated what we were doing manually, almost exactly. But the cost was just too material, particularly the cost of setup, cost of the audit, compliance, all that sort of stuff. So we were going to have to pass on a significant increase in cost for clients, which just wasn't in their best interest, which was fundamental for the same investment outcome, except we got an efficiency gain that wasn't in their best interest either. And that's why, for us, the model portfolio was a clear winner. There's no additional cost to clients if there's an improvement, investment outcome, and consistency for clients. And there is also a benefit for us in compliance and efficiency in scale.


This document has been created by Westpac Financial Services Limited (ABN 20 000 241 127, AFSL 233716). It provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information has been prepared without taking account of your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. Projections given above are predicative in character. Whilst every effort has been taken to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not consider known or unknown risks and uncertainties. The results ultimately achieved may differ materially from these projections. This document may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, Westpac Financial Services Limited does not accept any responsibility for the accuracy or completeness of or endorses any such material. Except where contrary to law, Westpac Financial Services Limited intends by this notice to exclude liability for this material. Information current as at 10 December 2021. © Westpac Financial Services Limited 2021.

1. Financial Services Council, Media Release, FSC Launches White Paper on Financial Advice, 12 October 2021.
2. Managed accounts projected to top $10 trillion by 2026, Broadridge, 2021.
3. SPDR ETFs/Investment Trends 2022 Managed Accounts Report, March 2022.