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Managed accounts in a post COVID-19 world

25th May 2020
Managed accounts in a post COVID-19 world
Tim Sparks
Head of Distribution & Marketing
Bell Direct

There's no mistaking 2020 has been unprecedented. Investors across the globe, at all levels of expertise, are feeling the shockwaves roll through their portfolios after watching changes to the way we live our lives and asset valuations swing significantly in a matter of weeks.

At a retail investor level, advisers have been left with the difficult task of engaging and reassuring clients against a backdrop of plummeting markets and all-time-high volatility. Emotional short-term decisions based on current events can very easily undo years of strategic asset allocation, putting long-term goals at risk and a strain on the adviser-client relationship.

Even for the most logical investors, it can be hard to tune out the market noise and stay focused during this period of uncertainty. From conversations with advisers over the last few months, many have found themselves in tough positions after being instructed by clients to switch or sell positions, and then missing the more recent market rebound.

For others, current market valuations are creating over confidence, and advisers are being instructed to take positions which are not aligned to the client's investment goals. In January this year, the Australian share market was trading on a PE ratio of 18.4, and despite what has occurred since, the August 2020 forecast PE ratio is still sitting at an incredibly high 17.8. It's likely we are still yet to see the full economic shock of COVID-19, and the market may have further falls ahead.

These issues have been less of an occurrence for advisers who use managed accounts - and it's worth exploring why. While the benefits of managed accounts, for both advisers and clients alike, have been voiced for the last two decades, analysing their viability in the current environment is telling.

Over the first quarter of this year, while the Australian sharemarket dropped a staggering 24%, diversified portfolios within managed accounts fell much less - with diversified income only down 6.9%, balanced down 7.9% and growth down 10.62%[1]. Transparent access to this performance data and insight into underlying assets is crucial in easing client concerns, particularly during periods of market downturn - so for many advisers it's been beneficial that clients can check their portfolio balance at any time and gauge how they are progressing to agreed goals.

In tapping the expertise of an investment professional via managed accounts, the emotive and behavioural bias elements can be minimised from the investing equation, which is of particular value during market volatility. As we know, asset allocation has the largest impact on the overall portfolio return, so it's crucial to keep clients focused on this rather than what is happening in the market on a particular day.

In addition, through outsourcing time-intensive compliance, investment execution and rebalancing processes, advisers using managed accounts have also been able to dedicate more time to client engagement - around an extra 13 hours per week, according to the latest (and regularly referenced) Investment Trends data.

This allows a greater focus on the areas where advisers can truly add value - providing reassurance of goals and portfolio construction, nurturing and building relationships and bettering clients' financial understanding through education. It also means there's more time focus on controllable, value-add aspects like estate planning, insurance and SMSF structure.

A focus on client interaction is important at the best of times, but can prove invaluable during a period where the role and essentiality of an adviser is under the microscope, particularly as people's livelihoods are put under pressure.

In a post COVID-19 world where advisers will need to showcase their value even more than before, it's clear the use of managed accounts will continue to rise.

[1] Bell Potter GPS Morningstar models - as at 31 March 2020


This article was first published on FS Managed Accounts.