Managed accounts combine the simplicity and scalability of traditional managed funds with the beneficial ownership, transparency and tax effectiveness of direct shares.
Benefits of managed accounts
Like managed funds, the portfolio manager can make investment decisions without the need for client consent. Unlike managed funds, managed accounts are not unitised or pooled investments – all underlying assets are held in the beneficial name of the client.
Individual beneficial ownership means the client knows exactly what investments they hold. It also means clients receive all dividends, franking credits and distributions without inheriting existing capital gains. This allows clients to plan individual tax outcomes based on their transactions only.
SMA, IMA or MDA?
There are three main types of managed account – Separately Managed Accounts (SMAs), Individually Managed Accounts (IMAs) and Managed Discretionary Accounts (MDAs).
The differences come down to legal structure and the level of individual tailoring.
Benefits for advisers
One of the challenges advisers face is to constantly improve business efficiency in a cost-conscious environment.
Managed accounts provide execution efficiencies because you don’t need client consent every time a change is made to a portfolio and you don’t need to perform individual trades every time you want to get clients in or out of a stock.
These economies of scale are especially valuable when it comes to corporate actions such as share issues, placements, mergers and acquisitions, which are extremely time-consuming. If your clients hold securities involved in a corporate action within a managed account, the portfolio manager can make decisions on their behalf.
Wallace says managed accounts also provide advisers with transparency and information about underlying investments, which allows them to have a quality conversation with clients.
“Offering a managed account frees the adviser up to provide more holistic and strategic advice and less time managing client portfolios”, she says.
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