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CASE STUDY
Setting Up a Managed Account Driven Practice
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Our Objective
Highlight why managed accounts are not just another product – they truly integrate advice and administration
Highlight how managed accounts can be used in delivering equities advice to clients
Highlight the value managed accounts can add to a practice – both financially and commercially
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Managed Accounts are not all the same
Investment Administration Services is a MDA Operator and Administrator – over $400 million in managed accounts
Enabler for dealers, brokers, investment managers and other licensed entities to create their own Managed Account Service
Dealer as investment manager approach, Investment Manager model approach or an institutional model ie. range of models and managers
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What does Dealer as Investment Manager Mean
Dealer can be appointed as an Investment Manager without the need for the dealer to have an MDA license
Own portfolio construction or mandated portfolios (dealer branded portfolios run by dealer selected specialist investment managers) or a combination of both
Asset class models, models across the asset classes or specialist models
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Introducing Sam Henderson
Master of Commerce (Financial Planning) (progress)
Bachelor Degree Commerce (Accounting)
Diploma of Financial Services (FP)
Advanced Diploma Financial Services (FP)
Advanced Diploma Marketing Management
Accredited Mortgage Consultant (AMC)
Specialist in retirement & self managed super
Securitor New Financial Adviser of the Year 2004
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Who is Henderson Maxwell ?
An award-winning, independently-owned, fee-for-service boutique financial planning firmOffices in Sydney and Melbourne, 8 staff with $130m FUMCater to higher HNWs and businesses, including SMSF’s more than $500,000 to investSpecialise in both retirement and super superannuation strategies
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Managing our client’s money – what have been the choices ?
Wrap with wholesale funds and shares
Retail Master trust (same thing but more expensive)
Retail funds using Xplan/ COIN back end admin
Direct shares via broker (maybe Praemium back end)
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The problems with using these choices
Every client has different shares and funds
No rationalisation of the investment process
Admin heavy from SoA to review
What if you want to sell ABS across the client base?
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Issues with the industry
Supply chain is heavily influenced – one might say “structurally corrupt”Commission focused not fee focusedProduct focused and not strategy focusedRecurring revenue focused not profit focusedBusinesses poorly systemised and managedDealer groups charging a fortune and not giving much back
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Issues with the industry
Fee compression occurring - don’t give up your margin!Managed Funds consistently under-performing benchmark
Many of these are opportunities for you to obtain business from institutions via
strategy based advice and innovation in product
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So if 80% of managed funds under-perform the index why keep trying and why pay a premium-
stop kidding yourselves!
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To date we have had to be ‘set and forget’!!!Major Wrap Service
Poor managed fund templating (limited MDA) and cash managementNegligent use and understanding of shares- trading, corpactions/ divsAverage client fee of 0.55% on eWrap and much higher on MTAverage fee of 0.9% on wholesale managed fundsPoor cash account rates
RetailClunky, inefficient and impossible to administer
Direct fee for serviceWe have had no control or MDA capability
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And platforms...
If they can’t do what you want and your clients are paying a premium, then why keep using it?
• Dealer Group?• Volume Bonuses?• Love of managed funds and the traditional
supply chain?
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The supply chain problem
Service Deliver/ Cost to
Advice Product Platform TOTAL
Client Pays 0.88% 0.99% 0.55% 2.42%
YOU 0.88% 0.00% 0.22%(VB) 1.10%
Difference 1.32%
Where is it going and are you and your clients getting value?
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Increase revenue by 50% and profit by 100%
Who has increased revenue in the past 12 months?
At Henderson Maxwell, our revenue has increased in the past 12 months• Profit up• EBIT % up• Clients happier• Better returns• Lower fees
How – Through Using A Managed Account
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Henderson Maxwell definition of an SMA/IMA? IMA - Individually managed account is a, non-templated, individual client account via an MDA that you can manage on a single platform
SMA - Separately Managed Account is a group of client accounts that you manage via an MDA structure using portfolio templates
MDA - Managed Discretionary Account - requires a separate and specialist AFSL usually carried by the provider (eg IAS) and for adviser to provide Investment Options document is required as well as a client contract. Gives dealer investment management capability to change account with dealer discretion without providing further advice to the client via an SoA/ SoAA - saves significant paperwork
IDPS - Investor Directed Portfolio Service - Investor directs portfolio manager to manage account at their discretion - like a fund - a PDS is required
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What is your expertise?
Model portfolio - a portfolio using someone else’s investment models cost 0.50-0.80% + platform costs
Custom portfolios - your own portfolios constructed in-house – small additional cost. You manage and make decisions
Individual portfolio - for HNW and high maintenance clients. You manage and make decisions at yours and the client’s discretion
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How does a Managed Account actually work?
Before:Each individual account on a wrap platformNo MDAChanged after a review and SoA/ SoAA or clientEg sell out of ABS would take 3-4 days for all clients incl RoFA
Now:Just like a wrap but betterCan sell down across the client base in secondsNo administrationOne staff member - 5 minutes workNo meeting with client, no SoA docs for changes
Better management, more efficient, responsive to market
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So how did we transition to IAS ?
1. Problem identification
2. Due Diligence on possible solutions
3. Own AFSL- intended anyway
4. Choice of supplier
5. Due diligence on Henderson Maxwell and agreements
6. Investment Committee and Investment Charter
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So, how did we transition to IAS ?7. Portfolio selection, Service definition and finalisation
of Investment Options documentation
8. Client migration - Marketing and SoA/ SoAAcompliance
9. Rollover process and implementation
10.Client management process and ironing out minor issues
11.Ongoing assessment and improvement eg. Coindatafeed, electronic application, online transactions
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Advice delivery
Questionnaire and Finametrica risk profile1st Appt- Client presentation on Managed Accounts and benefitsSoA Production and compliance, switching rules and disclosuresSoA presentation – Investment Options document, Managed Accounts client contract, IAS FSG, PDSsSMSF set-up - ABN/ TFN, account set-upClient management and fulfillmentClient review process - print desired reports
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How do we manage client’s money?
5 Step Process for the Henderson Maxwell Investment Committee
1. Global Economic Themes2. Asset allocation3. Sector analysis4. Stock Analysis5. Stock and Fund Selection, weighting &
transacting
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Research inputs
Internal & Consultants ResearchAegisHuntley’sStockValFarrelly’sLincolnEureka report
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Portfolio construction
Portfolio/ Asset
AllocationFixed Interest Conservative
BalancedGrowth+ Ethical
BalancedCash 30-50% 10-100% 5-100% 5-100%
Fixed Interest 50-70% 30-90% 10-50% 5-30%
Aust Property 0% 0-20% 0-20% 0-20%
Aust Shares 0% 0-50% 0-50% 0-70%
Int Shares 0% 0-20% 0-20% 0-30%
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Sample portfolioHenderson Maxwell Recommended
Conservative Portfolioas at 31 Jan 2009
Australian Shares
Share ASX CodeFloating
Weight at 31/1/09
Caltex CTX 0.14%Woodside WPL 0.34%WorleyParsons WOR 0.12%BHP Billiton BHP 2.23%Incitec Pivot IPL 0.31%Lihir Gold LGL 0.12%Newcrest Mining NCM 0.27%Gold Bullion Securities GOLD 0.29%OZ Minerals OZL 0.10%RIO Tinto RIO 0.42%Ausenco AAX 0.04%Austal ASB 0.16%Leighton Holdings LEI 0.35%Brambles BXB 0.53%Toll Holdings TOL 0.26%Billabong International BBG 0.26%Crown CWN 0.22%Invocare IVC 0.30%News Corp NWS 0.15%Metcash MTS 0.22%Woolworths WOW 1.49%
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Sample portfolioTotal Direct Australian Shares 20.53%SSGA SPDR S&P/ASX 200 ETF Fund STW 1.27%Total Australian Shares 21.81%Property Securities ASX Code WeightStockland SGP 0.29%Mirvac Group MGR 0.24%Westfield Group WDC 0.98%Total Direct Property Securities 1.50%SSGA SPDR S&P/ASX 200 Listed Property ETF Fund SLF 0.00%Total Property Securities 1.50%International Shares ASX Code WeightiShares S&P 500 IVV 1.04%iShares S&P Global 100 IOO 0.00%Total International Shares 1.04%Fixed Income/Debt Securities ASX Code WeightMacquarie CPS MQCPA 5.45%Vanguard Australian Fixed Interest Index Fund VAFI 53.47%Total Fixed Income/Debt Securities 58.92%Cash WeightCash - ANZ Account ( @ 4.25% less 0.35% = 3.90%) 16.73%Total Cash 16.73%Total Portfolio 100.00%
Benchmark Return
Value Add
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Industry pressures?
Fee compression is real - don’t let your margin get squeezed!
Clients questioning the supply chain -vertically integrate and own your clients from go to wo
Product rationalisation- active vs Index
Adviser needs to add value via product ANDservice
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Own your client and take back your business!!
The CLINCHER! By using a managed account;
Clients save around 0.5% on average
Business increases revenue by 50% and profit by 100% - it’s a true win-win
YOU have total control of the supply chain
Increased fees through investment management fees, brokerage and performance fees
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Own your client and take back your business!!
The CLINCHER! By using a managed account;
Much better client management - template your whole client base
Practice efficiencies via active portfolio management, MDA so no SoA/ SoAA/ RoFAfor changes
Portfolio Mgt you can truly stand by - your client already thinks you do this!
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Own your client and take back your business!!
The CLINCHER! By using a managed account;
GUESS What? Who owns the relationship?He who owns the relationship can own the
supply chain!
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‘Set and forget’ is no longer a portfolio strategy
Your clients are getting smarter, expecting more and wanting to pay less. Like it or not SMSF and industry funds are the fastest growing sectors in our industry- stop kidding yourself, confront the brutal facts and address the real issues
•It’s challenging•It may take more education•You may lose a client or two
But it’s totally scalable and you will have a better business and be able to provide the service your clients truly deserve
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Summary
Managed Accounts• Better returns for your clients• More control for you - greater control of the
investment function• Add to your margin and increase your EBIT• Vertically integrate your practice and reduce supply
chain risk• Provide for reduced administration• Provide a point of difference and Unique Service
Proposition (USP) for higher net worth clients who seek active management