Financial advisers may need to factor in how a managed account trades, in order to realise full benefits for investors


Damian Cilmi

Financial advisers may need to factor in how a managed account trades on behalf of their clients in order to realise the full benefits of a personalised managed portfolio, according to Ralton Asset Management, one of Australia’s longest running separately managed account (SMA) investment managers.

In a podcast hosted by Praemium released earlier this week, Ralton Portfolio Manager Will Riggall described the many moving parts when an SMA investment manager engages with platforms to conduct trades on behalf of financial adviser clients.

It’s when the ‘rubber hits the road’ in trading that investors can extract maximum benefits of moving to an SMA – but often these factors are either not clearly understood nor at the top of list in the process of selecting an SMA investment manager.

Will said “the key to giving investors the maximum benefit of SMA is to trade swiftly and remove the performance slippage that may occur by delaying trades after an investment decision is made. It’s also imperative that any trade does not constitute a high volume that it impacts the market price the investor receives.”

Communication about trades – ideally when it occurs – was also considered important, but that is on the basis that the fundamental principles above are observed in the first place.

Will suggested that one of the common impediments to swift trading and lower-volume trades is often due to SMA managers running large unit trusts alongside SMA’s. This can then cause a range of conflicts that need to be managed: including the order of trades between unit trust and SMA investors, how closely the SMA and the unit trust match the actual ideal portfolio, whether the investor communication is based on the unit trust or the SMA portfolio, and whether a large trade by the unit trust can potentially impact SMA investor outcomes.

One way to avoid this issue is to consider a SMA investment manager that does not run large unit trusts alongside SMA model portfolios.

Damian Cilmi, Praemium Head of Investment Managers and Governance said ‘Praemium’s recent research report ‘The real truth about managed accounts’ outlines the quantifiable benefits of SMAs for advisers and their clients. For advice firms, the efficiency benefits are now backed with evidence of a clear profitability boost.  Investors in SMAs not only enjoy an enhanced wealth management experience, but the benefits of netting and lower brokerage costs make them a cost-effective solution. Ralton has taken the extra step to articulate those additional benefits from a portfolio trading perspective and it’s important that all factors are considered in the SMA decision.”

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