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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The solution, called the Crystal Wealth Managed Account Service, provides Crystal Wealth’s clients with eight model portfolio options or a tailored discretionary mandate according to a client’s specific needs.  The service includes daily portfolio management, comprehensive administration and reporting services.  

Multiport CEO John McIlroy said: “Our unified managed account service allows advisers to offer their clients efficient administration of a wide range of portfolio services.  There is no doubt there’s increased interest in the managed account space and this type of solution can be ideal for specialist practices that have higher net worth clients and SMSFs as a core capability.” 

Clients using the Crystal Wealth Managed Account Service can select from five diversified models (conservative, moderate, balanced, assertive, aggressive) and three specialist sector models (core equity, income equity, global equity) for each portfolio.  

The model portfolios can comprise any combination of cash, income securities, listed shares, ETFs and managed funds.  Alternatively, clients may opt to have a tailored portfolio built around their stated risk tolerance. 

Crystal Wealth Partners director Tim Wedd said: “Crystal Wealth provides flexible portfolio management solutions for its clients that are needs-driven, not product focused.  Our higher net worth client base has a definite preference for direct investing and we needed a managed account provider that had the capacity to work with us to build the solutions our clients want. 

“Multiport was able to offer us a fully integrated managed account and SMSF administration service and this is a vital ingredient of proper ongoing client management.  Multiport demonstrated to us that it had the necessary personnel, experience and systems to allow us to build client solutions that meet their service expectations.” 

The Crystal Wealth Managed Account Service allows for expanded reporting across a wide range of assets including shares, term deposits, managed funds, direct property, collectibles and other non-standard assets.  This means SMSF clients also receive integrated daily administration and reporting to deliver a fully compliant solution with online access at all times.

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Multiport CEO John McIlroy said the majority of the recent growth has come from SMSFs referred to Multiport’s administration and compliance services by financial advisers, accountants and from direct clients.

“While the SMSF segment has been growing at a healthy rate we have been able to grow ahead of the curve due to the great support we receive particularly from financial advisers and increasingly from accounting practices.”

Last year, Multiport extended its SMSF services range to better engage with financial advisers who had existing accounting relationships and to provide services directly to accounting practices.

“Using Multiport’s service means accountants are able to better prioritise how they manage their clients. This means we can now work in a tripartite arrangement with advisers and accountants and the great benefit is clients will get a better service outcome,” McIlroy stated.

Multiport provides daily SMSF administration services to clients and this includes daily compliance monitoring for contribution caps, non compliant investments, pension caps and other superannuation legislation related issues. Mr McIlroy said as the SMSF market grew, Multiport’s service offering was adapting to the increasing demands from accounting businesses.

“Some practices decide they don’t have enough SMSF’s to provide in-house assistance and outsource to us, while others feel that the level of service that SMSF trustees are demanding is beyond what accounting practices have typically provided.”

“Either way we have been able to provide an appropriate solution that suits all parties,” Mr McIlroy said.

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