The Institute of Managed Account Providers (IMAP) has welcomed ASIC clarifying its interpretation of the circumstances in which an SMSF trustee can be treated as a wholesale client.  The general test which can now apply means that an SMSF trustee is wholesale client if a certificate is available from a qualifying accountant that the trustee has net assets of $2.5m or income of over $250,000 for two years.

In their announcement released on 8 August 2014, ASIC states that its “…revised approach means that … if the person providing the advice determines… the trustee is (personally) a wholesale client based on the general test…” then the adviser can treat the SMSF trustee as a wholesale client.

Toby Potter, Chairman of IMAP said “The general tests include an income test – $250,000 for the past two years- or a net assets test, $2.5m (not including superannuation). Many trustees will meet one of these tests, enabling them to be classified as wholesale clients. They can therefore be offered a wholesale MDA service. ”

“This will substantially reduce the compliance burden for advisers who have previously hesitated about offering MDA’s. The result is likely to be a significant improvement to the quality of portfolio management offered to this type of investor.” said Potter

In September, IMAP and The Fold Legal are holding a Masterclass on the obligations for Responsible Managers of AFSLs with MDA authorisation.

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ETFs offer flexibility as they can be traded during the day like a share: Betashares

Exchange traded products are worthy of consideration for use as a core building block of managed accounts and can provide multiple benefits to managed account providers, according to BetaShares.

Speaking at the Institute of Managed Account Providers (IMAP) event in Sydney last week, Vinnie Wadhera, BetaShares’ Director of Institutional Business and National Accounts discussed the multiple applications of exchange traded funds for managed accounts.

“We are seeing three methods of exchange traded fund implementation across managed account providers being core exposures, access to specific strategies or asset classes and dynamic asset allocation,” Mr Wadhera said.

For core exposures, exchange traded funds can be used alone to create balanced portfolios or can be blended with active managers. Such blending can serve to reduce portfolio cost and improve liquidity without the adviser needing to dramatically change the investment portfolio.

“There’s often a misconception of having to choose between active managers and exchange traded funds. As an ETF Fund Manager, we believe there is room for both in providing optimal outcomes for portfolios,” he said.

Another key use of exchange traded funds by managed accounts is as a means of widening choice and offering strategies or asset class exposure to investors which may otherwise be difficult to implement.

“A key advantage of exchange traded products is their ability to give investors simple to access, low-cost exposure to asset classes or strategies in a single trade. For example, we’ve seen advisers adopt exchange traded products which seek to provide enhanced equity yield performance or portfolio hedging exposure, which would be difficult to obtain via other means. We’ve also seen interest in specific asset classes such as currency and commodities, for the same reason.”

Perhaps one of the most effective ways to use exchange traded funds in managed accounts is to use the flexibility of the exchange traded fund structure to implement dynamic asset allocation strategies:

“We believe exchange traded funds offer tremendous flexibility as they are traded on exchange and can be purchased or sold during the day like a share. This offers managed accounts flexibility to tailor portfolios dynamically, tilting to investment views as required,” he said.

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“There is only a brief consultation period, so it’s important that the response is coordinated. Not all participants will have common views but where there is a diversity of views, these need to be represented.
 
“Many managed account providers are smaller organisations and responding to ASIC Consultation Papers may not be high on their agenda. Ensuring their views are presented to the regulator is an important part of the role of an industry organisation,” said Toby Potter, Chairman of IMAP.
 
“We are also providing a facility for companies that want to make a specific response to piggy back on the broader response process,” said Mr Potter.
 
ASIC released the CP on 8 March has announced that the response period only extends to 19 April.

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Peker focused on key trends which research identified. Drawing on responses from 919 financial planners, Peker emphasised that advisers were moving strongly to portfolios built on listed investments.

According to the planners who responded to the research, 28% of new client money is being placed in listed securities, including shares, REITs, LICs, ETFs, SMAs and IMAs, an increase from 23% the previous year. More significantly, planners expect the use of direct listed securities to continue to grow.

Planners typically saw a greater number of benefits of using direct investments in 2011, increasingly citing cost effectiveness, transparency and tax-effectiveness.

While stating that the number of planners recommending SMAs grew slowly from 17% to 18%, Peker highlighted that planners who have been recommending SMAs are ramping up their use. Planners currently recommending SMAs have 16 per cent of their personally managed funds under advice (FUA) in SMAs, up from 12 per cent in May 2010. These planners expect the proportion of their FUA in SMAs to nearly double by 2014.

Toby Potter, Chair of IMAP, said that use of Managed Account structures such as SMA’s are increasingly becoming the preferred vehicle for implementation of direct portfolios because of the efficiencies they offered.

“While directly held portfolios are more widely used by higher value clients, SMAs are seen as an alternative way of giving lower-balance investors the benefits of direct shares in their portfolios” he said.

Discussion at the breakfasts focussed on the business models of planners as they moved to more robust fee models. Portfolio management services provided by advisory firms will be a key tool for advisers to differentiate themselves from generic industry funds. “A distinctive offering will be the best  counter to a likely media campaign by the Industry Funds Network against planners” said Potter.

Technology development by the platforms as well as the emergence of new providers has made this increasingly a mainstream choice for planners. Already 40% of share trades by planners are executed through the platforms.

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