JBWere/Investment Trends SMA Report 2015 – SMA usage surges to highest level on record

Andrew Tracy

Andrew Tracy

Australian financial advisers are using separately managed accounts (SMAs) at their highest ever recorded level, according to a new report released by private wealth firm JBWere and research firm Investment Trends.

The February 2015 JBWere/Investment Trends SMA Report found that 20% of financial advisers were now using SMAs for client investments, while a further 23% planned to start using SMAs in future.

One of the largest research studies of Australian financial advisers using direct equities and SMAs in client portfolios, the report surveyed over 650 advisers on their experience and usage of SMAs versus investing directly in shares.

The survey found almost half (48%) of advisers who currently use direct equities for their investor clients’ portfolios said the work involved in monitoring individual stocks discourages them from investing directly in shares further, a sharp increase from the previous study.

Andrew Tracy, Executive Director and Manager of Financial Intermediaries at JBWere, said the results indicate advisers are increasingly turning to SMAs to relieve the administrative requirements of investing directly in equities in client portfolios.

“A growing number of clients are seeking the transparency of investing directly in shares, so for advisers this means monitoring individual stock activity and issuing statements of advice for multiple clients on a daily basis, all of which is not scalable as the business grows,” said Mr Tracy.

“SMAs provide an efficient solution for advisers with these types of clients, allowing them to outsource the day-to-day management aspects of maintaining an equity portfolio while maintaining the transparency and simplicity that clients value in direct share investments.”

SMAs and SMSFs a perfect match

The report indicated this was particularly the case for SMSF investors, with over half (51%) of advisers who use SMAs saying they believed SMAs were more appropriate for their SMSF clients than investing directly in equities. When asked why they recommend SMAs to clients, advisers nominated the fact that they allow clients to see the underlying shares in the portfolio (46%), they were less of an admin burden than direct shares (45%) and that SMAs were an efficient way to access professional funds management (42%).

“It’s pleasing to see advisers beginning to recognise that SMAs offer the ‘best of both worlds’ in terms of providing the efficiency and expertise of professional funds management, as well as the transparency of a direct equity portfolio,” said Mr Tracy. “This is especially important for SMSF clients, who generally value transparency and control of their investments, but are also looking for assistance on the management and reporting side.”

In terms of barriers to use, availability on investment platforms was a key consideration for advisers, with over 20% of advisers who currently recommend SMAs saying they were not available on their platform. Advisers who had not used SMAs before were more likely to cite an education gap as their key barrier to using SMAs, with over 40% saying they didn’t know enough about them.

“Availability on platform remains a key issue that SMA providers are working through as an industry,” said Mr Tracy. “We’ve made significant progress on this in the past year, with eleven platforms adding SMAs to their offering, allowing 25% of planners to now have access to SMA’s on their primary platform. We expect adviser take-up to continue to improve during 2015 as a result.

“There is also a broader opportunity for SMA providers here around education – it’s clear that advisers view SMAs as an extremely valuable tool in client portfolios once they understand their benefits and begin to use them regularly. The challenge for providers is to keep up that process of education, both to planners and Australian investors as a whole.”

The evolution of SMAs

The report also uncovered that advisers are beginning to see the benefits of SMAs beyond their traditional uses as a high net worth investment vehicle, with over 50% of advisers who were considering using SMAs saying they would like them to be cost-effective for their low balance clients. Advisers were also beginning to see potential in SMAs beyond the Australian equity space, with almost 70% of potential SMA users saying they would like to have access to an international equity SMA, 41% wanting access to a fixed income/hybrid securities SMA and 45% interested in accessing a multi-asset SMA.

“With the growth of the category we are beginning to see advisers look beyond the ways they traditionally use SMAs, both in terms of asset classes and also the type of client they are most suited to,” said Mr Tracy. “With minimum investment costs having come down significantly in recent years, and an increasingly varied product range available in terms of exposures and strategies, it makes sense for advisers to consider how they can replicate the benefits of SMAs beyond a client’s Australian equity allocation.”

The report predicts SMAs will continue to grow in popularity among advisers and investors over the next few years, with current SMA users predicting 24% of their funds under advice will be allocated to SMAs by 2018, compared to 13% currently.

“With the growth of SMSFs and an increasing cohort of investors demanding control, simplicity and transparency when it comes to their investment portfolio, we believe the time is right for SMAs to experience significant growth in the coming years,” said Mr Tracy.

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