John McIlroy

Managed accounts represent the most recent addition to the range of managed investment portfolio solutions available in Australia. Managed accounts do not pool client assets for investment purposes; however, they are generally still able to provide access to economies of scale due to their collective bargaining ability.

A managed account is a type of account (or portfolio) that is individually managed by a professional investment manager who decides when to buy and sell securities based on a stated investment strategy, model or goal.

A managed account is fundamentally different from an investment in a managed fund in that the underlying securities/assets are owned by the investor and hence all tax issues connected with those assets rest with the investor, not the managed fund.

Within Australia managed accounts operate under different names, including a managed discretionary account (MDA) or a separately managed account (SMA) or an individually managed account (IMA).

Who can invest?

The owners of a managed account can be:

• Individuals over the age of 18
• Self-Managed Superannuation Funds (SMSFs)
• Companies
• Discretionary Trusts
• Unit Trusts
• Charitable Foundations
• Deceased Estates
• Private Mandates

Access to professional investment management

A managed account adviser is responsible for managing individual portfolios in accordance with the investment objectives set out under the portfolio management arrangements. A managed account adviser generally does not directly hold any investments on behalf of clients. However, a key function of professional account management is that discretion is provided to the managed account adviser to alter a portfolio without prior reference to the client. This can greatly improve overall portfolio management efficiencies and introduces other regulatory requirements (including specific licensing provisions for MDAs or IMAs).

Retaining ownership

Under a managed account service the client generally retains full legal ownership of the investments in their account. However, the investments that form part of the client’s portfolio may in some instances be held by a custodian or sub-custodian on their behalf, for example with the operation of ‘model portfolios’. Under either approach, it is important to note that the client has full beneficiary ownership rights at all times. This means that the client is legally entitled to the benefits of all investments and the rights to all income and capital gains that arise on their behalf under Australian taxation laws.

A tax efficient structure

Because the client retains beneficial ownership of the investments, management of the personal tax position can be more efficient when compared to other forms of investment through managed funds or pooled unit trust vehicles.

A client’s tax management may be more efficient because:

• The client is directly entitled to all income and dividends arising from the investment held on their behalf.
• The client is directly entitled to all tax credits (e.g. franking credits) attached to the dividends or other income from a portfolio.
• The client doesn’t inherit the unrealised gains and losses of other investors that can arise within pooled investment structures.

Client tax planning can be improved. You are able to individually manage the capital gains position of a portfolio and plan to offset gains against losses to minimise total overall investment related tax on a personalised basis.

A client can see the individual tax position daily and plan accordingly with the right technology implementation.

Tax planning can be personalised. For example, when you partially sell a holding within a managed account structure you can determine which part of the holding is sold by nominating a preferred tax method, thereby potentially minimising total capital gains tax.

Because a portfolio is separate to other investors using a managed account service, the individual’s tax position is not influenced by the actions of other investors in the same managed account service. With managed fund investments, you can inherit unrealised gains and losses that have been made before you invest in the managed fund. Further, you can be liable for capital gains because the managed fund has had to sell assets to pay out investors who decided to redeem from the fund.

Consolidated reporting

Generally, a client can see all portfolio assets held within a managed account portfolio through centralised reporting functionality. If you have multiple entities investing through a managed account service, then some services can consolidate the portfolio views and/or view each portfolio separately. This will be a key requirement for sophisticated total portfolio management and looking to optimise the taxation outcome for a client across multiple tax entities.

By John McIlroy, Crystal Wealth Partners

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Tim Wedd

Privately-owned Crystal Wealth Partners, now with over $250 million FUA after four years in business, expects further asset growth through a broad acceptance of managed accounts by clients.

“When we started this business, I used to say that managed accounts were being embraced primarily by higher net worth clients but they ‘should’ start to take off more widely. Now, I am working with advisers who are using managed accounts across a range of clients as well as HNWs and using integrated portfolio solutions such as ours to better manage tax and pension outcomes,” said Tim Wedd, Executive Director, Crystal Wealth Partners.

“The tilt to international stocks is about the search for growth as well as getting a proper offshore weighting within portfolios. Client awareness and education about the need for diversification and long term growth opportunities continues to improve in an uncertain market,” said Mr Wedd.

“We are also delighted with the strong growth in our team (to 14), and being able to secure former FPA board member, Louise Lakomy, as a Director now at Crystal Wealth Partners. She is also a Director of the Financial Ombudsman Service Board.”

Another recent senior financial adviser appointment includes Chris Murray, formerly CBA Private Clients, who works alongside founders John McIlroy, Tim Wedd and senior advisers Keith Verner and Chris Barrett. Chris has been providing personalised financial planning and investment advice for over 20 years to high net wealth clients in private banking and financial markets and is a specialist SMSF Adviser.
Crystal Wealth has held an MDA licence since commencing operations in 2011. Its investment committee has underpinned risk based portfolios with a core international exposure since inception. Crystal Wealth Partners offers a range of different managed account options for clients which includes 8 model portfolios: 5 risk-based models and 3 sector specific models, one of which is a global direct share portfolio.

They now operate offices in Sydney, Melbourne and Adelaide.

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