Tim Scott

In a new case study by HUB24, advisers reveal the why behind the growing trend to leverage managed portfolios to deliver client value and efficiencies in their business outlining the cumulative benefits for their business and clients over time. As adoption rates continue to accelerate with 53% of advisers now using managed portfolios innovation in managed portfolio solutions continues to deliver benefits for both advisers and their clients.^[1]

Head of Managed Portfolio Brett Mennie said as the market leader in managed portfolios, having been awarded Best Platform Managed Accounts solution for the 6th year running, HUB24 is continuing to invest in enhancing their managed portfolio capability to help advice practices enhance their value proposition, engage their clients, and grow their business.^[2]

“For some time now, evidenced through the HUB24 Platform Alpha series whitepapers, we’ve known that innovative managed portfolio functionality such as tax optimisation capabilities combined with great advice can deliver real value for clients. The implementation efficiencies gained from the use of managed portfolios also has a significant impact on a clients’ portfolio value over time,” Mr Mennie said.^[3]

“The benefits of managed portfolios in helping advisers access professional portfolio management while delivering a scalable, efficient client value proposition in a cost-effective manner are becoming increasingly clear to advice practices, the longer they use managed portfolios.

“Advisers are telling us that while there are many benefits to using managed portfolio in the first year, over time in the longer term, they’re seeing even greater outcomes for them and their clients.”

In an interview with HUB24, Ford + Scott Financial Planning Director Tim Scott said his firm’s decision to move to managed portfolios back in 2014 has enabled his business to scale up, become more efficient and implement investment changes quickly for clients.

“The use of managed portfolios allowed us to embed our philosophy more efficiently, give us huge traction with clients and enabled us to heavily grow the business. We’re about to expand from four advisers to nine, and that’s on the back of the operational efficiencies that managed portfolios have created for us,” Mr Scott said.

Mr Scott’s decision to move to managed portfolios was driven by several key factors including increasing client value and engagement, improving transparency of underlying shares, and creating efficiencies in portfolio management.

“We had a heavy direct equity exposure in our client portfolios and the volume of ROAs needed to achieve a portfolio change was quite burdensome. Having a structure in place that creates efficiency but also transparency and communication has led to a huge amount of trust and client engagement.”

Tim Townsend, founder, and partner at Melbourne based private wealth firm TownsendCobain said committing to managed portfolios completely is the key to success.

“Over an 18-month period we presented the benefits to our clients and now we’ve implemented managed portfolios for almost 100% of our clients. This has created a fantastic base for our future growth,” Mr Townsend said.

“We’re finding that client interactions are now much less focused on how their portfolio is going and more about their goals and objectives. It’s more outcomes-based, which is allowing our advisers to have far more meaningful conversations with their clients.”

Both Tim Scott and Tim Townsend’s experience of using managed portfolios in their practices overtime is consistent with research findings conducted by Investment Trends which also found the longer an adviser uses managed portfolios in their practice, the greater the perceived client benefits across the following five key areas^[4]:

Improving transparency

• While 26% of advised in the first year recognised the benefits of providing clients with the ability to see the underlying shares in their managed portfolio, this increased to 59% for businesses that had been using managed portfolios for four years or more

Cost effectiveness

• While 38% of respondents noted cost-effectiveness was a benefit for clients in the first year, this number increased to 55% at four years or more

Ownership

• After using managed portfolios, 28% of advisers recognised the client benefits of direct ownership of individual securities in the portfolio in year one, compared with 42% at four years or more

Tax management

• Perception of tax effectiveness/CGT management as a key benefit of managed portfolios increased from 22% in the first year to 39% at four years or more

Effectiveness

• More than half (52%) agreed managed accounts was the most effective way to implement model portfolios at four years or more

Read the case study report on managed portfolios.

View the HUB24 managed portfolio webinar: accelerating the benefits of managed portfolios.

Read the HUB24 Platform Alpha Series whitepaper ‘Delivering Platform Alpha’.

Read the he HUB24 Platform Alpha Series whitepaper ‘Measuring the Cost of Delay’.

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Now with a proposal put to members to merge with the Association of Financial Advisers (AFA), the FPA Congress will be the first major industry event held after the result of the vote is known. Whether members vote ‘yes’ or ‘no’, congress will be a critically important venue to discuss the implications for members and the profession.

With early-bird pricing closing soon, members are encouraged to register before 30 September.  AFA members are also invited to attend the FPA congress at FPA member rates.

Under the theme, ‘Reunite, Reset’, the congress will host a range of sessions designed to help financial planners better understand the issues facing the profession as well as provide practical tools and information enabling them to work more closely with clients and understand their changing needs, particularly in the post-pandemic environment.

Sarah Abood, CEO of the FPA, says since the last in-person FPA Professionals Congress in 2019, there has been huge change both in the financial planning profession and also in the broader community.

“As a profession we have seen a bewildering range of ongoing and proposed legislative change , and grappled with a substantial fall in the number of financial planners.  We’ve experienced a pandemic, a change of government, and a volatile broader macroeconomic environment which have all impacted how financial planners go about their work with clients.

“As well, the ways that clients think about their finances, their life goals and their priorities, have changed following the pandemic.

“The Congress provides an opportunity for an update on all these changes, and to learn from peers as well as benefit from global best practice.  As we mark our 30^th birthday as an association, and contemplate a new start joining our colleagues at the AFA, the theme of Reunite, Reset is enormously relevant,” Ms Abood says.

FPA Chair, David Sharpe, says the FPA Congress will provide an opportunity for members to connect in person with their peers at a time when the profession continues to transform.

“As someone who runs my own practice in Perth, I see the FPA Congress as a great opportunity to reunite and share with colleagues so we can collectively improve the way we run our businesses and serve our clients.

“With a wide variety of sessions across the two days, there is something for everyone within the profession, whether you’re a principal, a paraplanner, an aged care specialist or an SMSF adviser,” Sharpe says.

The keynote presentation will be delivered by Professor Andrew Scott from London Business School who will discuss the latest thinking on longevity, what it means for us all as individuals and as financial planners, and what the broader economic, financial and social implications are.

In addition there will be plenary sessions from:

• David Sharpe and Sarah Abood on The Bright Future
• Matt Jones from Four Pillars on Grow Your Brand – business ideas from outside our industry
• Adam Spencer will lead a Q&A style discussion on “what will financial advice look like in 2030?” with the Hon. Bernie Ripoll, Professor Pamela Hanrahan, Sarah Abood and Tim Townsend
• Take Charge of your Future with Ben Crowe of Mojo Crowe – who has worked with with legends such as Ash Barty and Dylan Alcot

Breakout sessions will include:

• Quality of Advice review update from Michelle Levy
• The future of advice delivery
• How to ensure all clients are profitable
• Is technology the saviour of advice?
• Connecting with your clients in a post pandemic world
• Aged care advice – pricing, tips and profitability
• Helping to unpack ‘disability’ and its implications for clients
• Cyber attacks: prevention, protection and post-attack plan
• How your clients voted in the last Federal Election may impact how they now choose to invest
• How to ethically exit a client
• Legislative updates in financial planning from ASIC and Treasury
• Client engagement skills for a post-COVID world
• How to build life insurance portfolios
• Redefining financial planners of the future
• How to identify genuine SMSF needs for clients
• Delivering the advice of tomorrow
• How to convert more business through curiosity
• How beliefs can influence a client accepting your advice

A networking event on the evening of Wednesday 23 November will provide an opportunity for attendees to catch up with old contacts and make new connections, as well as help celebrate the FPA’s 30th anniversary as a member association.

Register for the FPA Professionals Congress.

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In HUB24’s latest Platform Series ‘Measuring the Cost of Delay’, it outlines a scenario where a client who invested $500,000 in a diversified growth managed portfolio over a period of six months was $4,460 better off when portfolio manager decisions were implemented immediately compared to if they were invested outside of the managed portfolio structure where there was a delay in implementation of even one week.^[1]

Over time, the benefits of timely implementation were reduced further, and by week six, $6,380 or 60.1% of the gain was lost through implementation delay.

Increased compliance and the manual nature of traditional portfolio management processes has made it challenging for advisers to deliver timely implementation of investment decisions. Advisers can often take one to six weeks to implement the decisions across their client base due to challenges in preparing advice documentation, discussing changes with clients, obtaining client consents and lodging paperwork.

Milliman Principal Victor Huang who provided the analysis for the scenarios commented, “Delaying asset changes by just a couple of weeks can really have a material impact on your client’s outcomes and quite possibly negate a large part of what the portfolio managers are trying to achieve when making these decisions.”

In another scenario, HUB24 illustrated the impact on client portfolio value where portfolios are rebalanced typically twice a year to coincide with biannual client reviews (‘static rebalancing’), with ‘dynamic rebalancing’ where rebalancing is implemented whenever the asset allocation weighting moves 2% outside the initial strategic asset allocation range.

Using a $500,000 investment portfolio with a 70/30 growth-based asset allocation, the scenario illustrated that using dynamic rebalancing, where six rebalances were executed (compared to two under static rebalancing), resulted in a benefit of $3,531 for the client in 2020.^[2]

This result was further increased over five years between 2016 and 2020 where analysis showed the portfolio was enhanced by $8,335 compared to the portfolio that used static rebalancing, representing an additional return of 1.67% on the initial portfolio of $500,000.

According to HUB24’s Head of Managed Portfolios Brett Mennie, advisers are looking for more efficient ways to approach portfolio implementation, to access professional investment expertise at scale and to tailor portfolios to meet individual client needs to add value to clients.

“Although we have seen enhanced market volatility recently and these results won’t always be the case, these scenarios illustrate that empowering portfolio managers with innovative managed portfolio capability to make changes to client accounts in real time may lead to a better outcome for clients compared to simply reviewing the portfolio twice a year, once again highlighting the benefit of managed portfolios over traditional portfolio management processes,” said Mr Mennie.

Townsend Cobain Partner and Private Wealth Adviser Tim Townsend agreed, saying the client consent model has its limitations. “There was a constant feeling of potentially leaving clients behind on the battlefield. We needed a solution to be able to act decisively, quickly and effectively across all of our clients.”

HUB24’s commitment to delivering innovative managed portfolio capability for advisers and their clients has consolidated their position as the market leader, maintaining 1st place for Platform Managed Accounts functionality for the 5th year running.^[3]

Scenario 1 – The cost of delayed asset allocation changes

Using the live portfolio performance of a $500,000 diversified managed portfolio on the HUB24 platform invested for a six month period, HUB24 compared the potential cost of delaying asset changes by 1, 2, 4 or 6 weeks, to illustrate the real world experience of how long it might take an adviser to administer a portfolio change.

This scenario illustrated delays in implementing the asset allocation change reduced the switch advantage – in particular more than 42% of the gain of implementing an asset allocation change was lost through an implementation delay of one week.^[2] This loss was increased by more than 60% through an implementation delay of six weeks.

Scenario two – The cost of delayed portfolio rebalances

Here the cost of delayed portfolio rebalances were analysed by comparing dynamic rebalancing to a static approach to portfolio implementation. Using a $500,000 investment portfolio with a 70/30 growth-based asset allocation, it illustrated the portfolio that used dynamic portfolio changes (rebalancing six times in a year) resulted in a one-year outperformance of $3531 in 2020 compared to the portfolio that did not.

Over three years between 2018 to 2021, the scenario illustrated the portfolio which used the dynamic rebalancing did so 11 times compared to six times under static rebalancing, and lead to a $6,144 investment performance benefit representing an additional total return of 1.23% of the initial portfolio balance.

Over five years, the scenario illustrated that the portfolio which used the dynamic rebalancing resulted in it being enhanced by $8,335 when compared to the portfolio that used static rebalancing, representing an additional return of 1.67% on the initial portfolio of $500,000.

Further to this five year analysis we tested outcomes based on 20 one-year timeframes (2001 to 2020) and observed that the dynamic approach (based on the same parameters) achieved more favourable results 70% of the time (representing 14 of the 20 one-year timeframes).

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[1]Refer to scenario: ‘The Cost of Delayed Asset Allocation Changes’ at page 5, of Platform Alpha Series: Measuring the Cost of Delay (September 2021). The six month period for the scenario was from March to September 2020. The magnitude and direction of these results are specific to the given set of market movements. Other sets of market circumstances and parameters will yield different results.
[2] Refer to scenario: ‘The Cost of Delayed Portfolio Rebalances’ at page 6, of Platform Alpha Series: Measuring the Cost of Delay (September 2021). The magnitude and direction of these results are specific to the given set of market movements. Other sets of market circumstances and parameters will yield different results.
[3] Investment Trends Platform Analysis and Benchmarking Report 2021.

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