How do managed accounts compare?

Categories: Empowering you

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.

  • SMAs operate under a Registered Management Investment Scheme legal structure, with a portfolio managed by a professional investment manager. Each client receives the same underlying investments but of varying value, depending on the time of purchase. SMAs offer a more ‘one size fits all’ approach than MDAs or IMAs, with resulting cost savings and a lower minimum investment.
     
  • MDAs operate under a different legal structure, which requires the operator to hold an Australian Financial Services Licence. This means the MDA operator takes responsibility for investment selection. Clients are not required to approve investment selections, but they are allowed a high degree of customisation.
     
  • IMAs typically operate under an MDA legal structure. They offer the highest degree of individual tailoring, with the flexibility to include or exclude shares or other investments based on client preferences. Sue Wallace, Head of Product Solutions at Colonial First State says this makes them especially suitable for high net worth clients who may already have significant holdings of particular stocks or market sectors, and professionals who need to exclude shares of companies they work for or deal with.

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.

Want to keep one step ahead? Sign up for our monthly enewsletter, full of insights and tips to help you in your day-to-day.