Case study: Managed accounts - Margaret Mote - Tailored portfolios 3rd party MDA


Bongiorno & Partners

Based: Melbourne & Sydney
Active clients: 1700 client groups
Offering: Tax & accounting, investments, super, insurance, personal risk, finance with an in-house bank model

Was there a main problem that you wanted to solve with implementing managed accounts?

We wanted to outsource the investment management, to have professional managers make the investment decisions for our clients. We believe that the value we offer to our clients is strategic advice rather than portfolio construction or investment management services. We wanted our clients to have the opportunity to have their money professionally managed, based on our investment philosophy and a robust process.

How was the conversation with clients when it came to managed accounts?

If I reflect back on the experience that where we started this journey over two years ago, I think it was to find a way to simply articulate the difference between what we had been doing and what the new MDA offering would look like. I think we perhaps got caught up a little bit in the weeds and over complicated it and I think over time we've gained the confidence and to be able to sort of much more clearly articulate the key benefits of a managed account offering for our clients. We can sort of quite simply articulate that the difference between our MDA and non MDA service is really only for the client control issues. Does the client want us to ask them every time that we make a change to the portfolio? Do they want to sign on the dotted line or are they happy for us to do that and then just for us to keep them informed and communicate to them what those changes are? So the investment philosophy, the strategic asset allocation generally is the same across both and we have seen that now that we've got two years of performance reporting that an active rebalancing and asset allocation has given a better outcome, investment outcome for our clients. So generally speaking for most advice businesses, their clients will most likely be very happy to follow their advice. That's why they come to you. There are some clients that don't want to relinquish control, but other than that I think that's where it's really melted down to. It's suitable for everybody unless they want that control.

Did you have any hesitations when you were considering managed accounts?

I don't think we had hesitations, I think the difficulty was what type of managed account would best suit us. So we were trying to find as best we could something that would future proof our advice business and even just understanding the difference between a separately managed account or an individually managed account or managed discretionary account. We were starting from that position and what would give us sort of the greatest flexibility in the longer term. I guess we wanted to have something that would offer us the ability to change any of the parties involved without having to break and restart all over again. So that's probably what took us a bit of time in the beginning and you were very good in helping us, introducing us to Philo and helping us meet, introducing us to asset consultants and MDA providers and that was truly beneficial to help us find what was right for our business.

What was your experience when it came to implementing managed accounts?

I think there are a few sort of learnings looking back. First of all it probably took us a little bit longer than what we originally thought to gain traction. We were hopeful that within the twelve to 18 month period of meeting with clients and doing annual reviews, that we would transition a greater portion of our business across to the MDA service. One of the obstacles for us was that a lot of our clients have been clients for a long time, so there's a lot of inherent capital gains tax in their existing portfolios and how to manage that. And also, even just as they say, the first sale is always to yourself. So for us to really believe that the MDA was a better option for our clients, the team, the business, it just took a little bit of time.

Who did you partner with to implement managed accounts?

BT kindly introduced us to Philo and we immediately sort of felt very comfortable. They're specialists in the managed account area and have provided services to many other licenses in the past successfully. So that was the first step. And then we wanted to have each part of our offering separate, so that if, for example, we weren't happy with buyer or we weren't happy with our asset consultant or any other party involved, that we could just after a three or five year period review it and just that portion of their input would be replaced. So I guess the beauty parade as it’s called, to sort of select the right asset consultant who understood our business, our clients, and what we were looking to achieve. We met with I think four or five different asset consultants and then I think that the next sort of challenge was how do all the parties work together? So what actually happens when there's a quarterly asset allocation rebalance? How does that then feed through to the asset consultant and then to Philo to implement? So that took a bit of time to bed down, to work out who exactly was going to do what, what the formatting of the reporting would look like for us. So now we've got fantastic reporting where we can actually see the benefit of the active or the tactical asset allocation changes and the attribution to the fund manager selection. And that took us a little bit of time to bed that down. Our clients often had direct equities and that was previously managed by us referring our clients to a panel of brokers who we worked with and gave advice and that got incorporated into our statement of advice. But we actually wanted to have within the MDA service a discrete direct equity portfolio, which we were able to do by again sort of meeting with a group of direct equity managers and they provide the input on what to buy and sell and hold. So that's been a great benefit to us, as has recently we’ve added an ESG portfolio to the MDS service, which is something that was very easy to do because of the structure that we had to add an additional portfolio.

Has introducing managed portfolios benefited your relationships with clients?

Definitely. So just an example of that is that we send out communication to clients whenever there is a rebalance and of all the communications that we send out to our clients it's got the highest open rate. So over 90% of the communications that are sent out are opened and clicked through and read. To me that means that the clients are engaged. So even though they have given discretion, they're still interested and engaged to see what has changed. It's also sort of freed up the time of our advisers to spend more time with the client and talk about other things than the portfolio performance, things that are important or of concern them.

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

We've had the managed discretionary account, we've had a couple of out of cycle quarterly cycle rebalances. One was when Covid first hit and then also more recently with the Ukraine and Russian sort of invasion, we saw the portfolios being rebalanced and risk taken off the table, allocating more to the Australian market and the value that that's added. So with traditional portfolios we've seen that unless there's an annual review it can take a long time to implement those changes across the entire client base. With the MDA we got 200 accounts within two days it's done. So definitely that's been one of the greatest benefits that we've seen.

How have Managed Accounts helped with compliance?

I think what it's done is produced consistency of experiences and performance across all of our clients. There's a robust process that sort of followed again that is consistent across the entire sort of managed account client base. There's no implementation errors because that's taken away from our office and Philo do that for us.

Have Managed Accounts helped to grow your business, or any other tangible benefits?

An adviser can probably see more clients because less time is being concerned about meeting with fund managers or making those investment decisions. So that's given them the freedom and the time, and as we know, a lot of clients and a lot of client meetings aren't even about the investment outcome. Half the time it might be just counselling or chatting about something that's happened in the client's life. So I think the advisers have enjoyed having that part of the discussion almost removed from the client meeting. It’s more about the quality and the consistency and the outcome for the client that’s changed rather than the cost. There would be some cost because there's the back office in doing all the manual rebalancing and reviews, there would be some savings there. But I think the greater thing is the quality of the outcome and the more time the advisers have to spend with their existing clients or additional clients.

Could you leave us with a piece of advice from your experience with Managed Accounts?

Take the time up front to really think about and understand what offering is best for your business to try and future proof the offering as best you can upfront. So for example, we started off talking about in our managed account offering that certain portfolios would be invested within certain ranges and as you know, when you’ve got a managed account offering you have an investment program and the portfolio has to be managed in line with that investment program. After two years, we realized we would prefer to have a growth and defensive range, and within that growth and defensive range, be able to allocate to international or Aussie equities more broadly. Because we found at times when you've got hardwired ranges, in certain times you can come up across those ranges and you can't sort of fully implement what you want to. We only learned that from having to address an issue that occurred through an asset allocation, saying, we’d like to overweight to Australian equities more than international equities at a particular time. And because we’d hardwired it too firmly, we couldn’t actually implement what we wanted to. So we had to actually change the investment program for all of our clients. So take the time to learn and understand how managed accounts work and to the best possible it's hard in the beginning to sort of think about, well, okay, what’s going to give me the greatest flexibility down the track if I want to add a new portfolio, change a fund manager, change something within the offering without having to inundate the client with amounts of paperwork?


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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.