Managed accounts attract record high per cent of new funds under advice 

State Street Global Advisors, the asset management business of State Street Corporation (NYSE: STT), together with Investment Trends, today issued a new report showing a record 25% of all new client inflows are now placed into managed accounts.

This reflects the growing appeal of managed accounts for a new generation of financial advisers.

The proportion of advisers using them has more than tripled from 18% a decade ago to an equal record high of 56% now. A further 19% of advisers are potential users, taking the total possible reach in coming years to 75%, making managed accounts the pre-eminent solution for advisers.

This helps explain why Funds Under Management (FUM) in managed accounts have surged 146% in five years to exceed $194.85 billion[1].

The 15th annual SPDR ETFs / Investment Trends Managed Accounts Report found that with ongoing capital markets instability, fanned by economic and geopolitical tensions globally, adoption of managed accounts has become more popular than ever.

State Street Global Advisors’ Vice President and ETF Model Portfolio Strategist, Sinead Schaffer, said the strong and sustained adoption of managed accounts was a reflection of their ability to support advisers’ holistic approach to financial planning.

“Fifty-nine per cent of advisers cite ‘freeing up their time’ as one of the main upsides of using managed accounts with advisers now reporting they, or their support staff, save on average 22.8 hours per week, up from 17.1 hours last year.

For an adviser who works 7.5 hours a day, that’s a saving of three days per week,” Ms Schaffer said.

“This allows them to focus on value added work that increases their customer value proposition to existing and new clients.

“As expected, more advisers are using these structures for lower balance clients, with 40% of existing managed account advisers believing it’s appropriate to hold the majority of assets in a managed account for clients with balances less than $100k, up from 33% the previous year.”

Ms Schaffer said the most popular reasons for recommending managed accounts to clients included performance, fees, availability on their main investment platform, reputation of the asset manager, and asset class exposure: In the past year, advisers have recommended, on a median basis, 19 managed account models from 25 available on their approved product lists (APLs).

With approximately 1,100 options available, it begs the questions why does the APL reflect less than 1% of options available.

Managed account advisers say they allocate close to two thirds (64%) of clients ’ total assets into a managed account, with the most popular (68%) being multi-asset class.

“Separately Managed Accounts (SMAs) continue to be the most widely used structure for implementation (80% cite this). Sixty per cent of these solutions are strategic asset allocation, indicating these are long term investment solutions,” Ms Schaffer said.

“Financial advisers mainly use managed accounts as a core, long-term portfolio allocation solution, dedicating 60% of new client money to core investments, 55% of that core to managed accounts and they plan to keep the investment for an average of 7.8 years.

“Forty-three per cent of current managed account users have used income-focused strategies in the past 12 months and 42% of current managed account users have used risked based strategies in the past 12 months.”

Investment Trends CEO Eric Blewitt said managed accounts had particular appeal for different client segments. “Affluent clients with funds between $250,000 and $1 million are the most popular segment that advisers believe should use managed accounts for the majority of their portfolio,” he said.

“That is followed by clients with balances between $100,000 and $250,000, those with less than $100,000 and finally High Net Worth clients with more than $1 million to invest. “On a generational basis, accumulators aged between 35 and 49 are seen by advisers as the most appropriate for managed accounts, followed by retirees, pre-retirees over 50 and finally millennials under the age of 35.

“Almost a quarter of non-managed account users said a reduction in platform fees would prompt them to start recommending managed accounts to their clients. “More than three quarters of all financial advisers (77%) say they would consider switching their managed accounts to a different platform, in a sign they continue to look for ongoing value in a hyper competitive market.”

Other key findings:

• Managed account advisers have been particularly bullish in their investment options over the last 12 months, adopting growth-oriented investment strategies for their clients more than twice as often as defensive ones (64% versus 24%).

• However, that is likely to shift in 2024, with income-focused strategies emerging as the most popular strategy for almost half of all managed accounts advisers (42%), followed by growth (29%) and ESG-aligned (27%), while defensive and risk-based models continue to fall away (17%).

• Sixty-one per cent of current managed account users rely on research houses to ensure recommendations meet best interest, compared to 45% who evaluate past performance and 35% who rely on investment managers’ recommendations.

The 15th edition of the SPDR ETFs / Investment Trends Managed Accounts Report was conducted by Investment Trends via an online quantitative survey of 1,066 Australian-based financial advisers between November 2023 and January 2024. State Street Global Advisors officially launched its ETF Model Portfolio capability to the Australian market in 2019, through various intermediaries.  According to the report, it now ranks among the top 20 most used investment managers by advisers who currently use managed accounts.

[1] Source: Institute of Managed Account Professionals (IMAP) and Milliman, as at 31 December 2023.