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What are the key issues we need to address?
Avoid bad investments
Reduce total fees to client
Improve productivity of
advisers
Enhance client engagement
Enhance client outcomes
Meet client best interest
Be prepared for changes that
may result from FSI
The rise of the self-directed investor
The rise of the self-directed investor and SMSF • Starting out without an adviser • Sacking the adviser • SMSFs SMSF issues • Advised vs non advised • Don’t like paying any fees at all • Like direct equities • Don’t like managed funds due
fees and performance – (will mfunds take off with SMSF’s?)
• Like control
Addressing the issues
Advice • Structure and
ownership issues • Product flog • Cottage industry
or mature? • Scaled advice?
Fees • Adviser fees • Platform fees • Investment fees
Investments • Advisers and
clients seeking higher returns
• Matching risk profiles
• Research • Management
Productivity • Adviser • Platform
Managed Accounts
The arrival
• Structure and ownership issues • Been talked about for long time • Growing FUM but still small • Significant opportunity • Niche players to date but now
mainstream
Reasons for growth
• Ease of administration • Professional investment management • Growth of Model Managers • Fees • Transparency • Tax efficiency • Technology • Adviser awareness
Notify changes or recommend to rebalance
client portfolio
Each client portfolio
individually reviewed
Client rules & exceptions considered individually
Calculate buy/sell for each
client
Issue ROA for
each client
Implement changes for each client
Monitor implementation
for each client
Rebalancing – the old versus the new
Notify changes or recommend to rebalance client portfolio
Managed account provider rebalances all clients immediately taking into
account all rules & exceptions
Managed Accounts must provide
Simple and robust legal structure Ability to calculate and implement multiple and complex models All asset classes and sub asset classes including diversified
models Multiple Managers Multiple Models Ability to blend models Extensive rules and exceptions at parent and client level Superannuation accounts Extensive performance reporting across Managed accounts and
platform Efficient trading engine Highly personalised client portfolios Tight integration within platform – not stand alone product
Model performance vs. shadow portfolio
Number of assets in
model
Size of client
account
Minimum trade value
Minimum holding value
Market impact of
orders
Pricing of assets and
liquidity
Examples
Minimum trade size $100 $250 $250 $100 $250 $250 $100 $250 $250
Minimum holding $250 $500 $1,000 $250 $500 $1,000 $250 $500 $1,000
Client portfolio size
$25,000 $25,000 $25,000 $50,000 $50,000 $50,000 $100,000 $100,000 $100,000
Stocks not purchased at all 5 10 16 0 2 8 0 0 2
Deviation from target portfolio 3.8% 10.6% 29.57% 0.38% 1% 10.87% 0.19% 0.19% 1.19%
Total # assets 34 Average % per asset 3.00% Percentage range 1% - 5%
Models
Tracking existing managed funds
performance
• Mainly domestic equities at present
• Issues of IP – blackout periods
• Preservation of margin by fund manager
• Ensuring lower costs in Managed Accounts
Multi Manager Models
• Reduced costs • Greater transparency
Dealer Models
• Investment skills • Opportunity to add
revenue
Research obligations
Compliance
• Operator has RE responsibilities
• In super, Trustee has responsibilities
Managers
• Fund managers • Model managers • Dealer group models
Mandate
• Clear, precise and trackable
• Constantly monitored by operator
Take outs
• Structural changes in advice industry to continue / greater IFA share • Pressure on fees at all levels • Continuing enhanced regulator oversight • Cost pressures continue • Rise of the self directed investor • New technology challenges existing structures • ???? Future of independent platforms ???? • Platforms servicing self directed investors • Growth of ETF’s and Managed Accounts at expense of Managed Funds • Greater need for advice but we must rise to the challenges
Disclaimer
The information in this presentation reflects netwealth Investments Limited’s (‘netwealth’ ABN 85 090 569 109) understanding of existing legislation, proposed legislation, and rulings as at the date of publication. While it is believed the information is accurate and reliable, this is not guaranteed in any way. The financial product advice or information contained in this document is of a general nature only. It has been prepared without taking into account the particular objectives, financial situation or needs of your clients. Applications to invest in a financial product, or use any service provided by netwealth must be made by completing the applicable Disclosure Document which can be obtained from netwealth. Prospective clients should consider the applicable Disclosure Document before deciding to acquire or dispose of the product, or utilise any service offered by netwealth.