Tag Archives: managed accounts

The Winston Capital Partners and ProCapital Guide To Forming an Investment Policy Framework – 22 May 2017

Over the past decade, numerous advisers have taken the investment management function in house, effectively setting up multi asset portfolios to better manage their clients’ wealth and better align them with their particular objectives. This trend has been well documented, and has resulted in the strong share price performance of most listed managed accounts providers, who are the key enablers that make it possible for advisers to offer their portfolios to the public, without the need for statements or records of advice.

For any adviser wishing to go down this implemented portfolio route, many issues need to be addressed, not least of which is the development of an investment policy framework that will form the basis on which their clients capital will be managed.  But an investment policy framework is more than that.  It is a document that should enunciate the competitive advantage of the adviser’s firm, whilst acting as both an internal and external communication tool.

To assist adviser’s get started on this important subject, both Winston Capital Partners and ProCapital collaborated to build a Guide that we hope will make the task a lot easier, than starting from scratch.

About the Guide

The Guide’s primary purpose is to assist advisers develop their own investment policy framework by taking examples from leading financial institutions here in Australia and overseas.  It is aimed at those advisers who are considering offering a standalone multi asset portfolio service using a unit trust or Managed Discretionary Authority (MDA) on a managed account platform but are not sure where to start.

It would not be possible to cover every section of policy framework in extensive detail.  As such, this Guide has been developed to offer examples of what should be covered in each section, recognising that consultants and research houses play a vital role in completing this important task.

To access the Guide, please click on this link.

(Please feel free to cut and paste sections of the Guide into your own documents – we want the Guide to be of practical help).

We welcome feedback

We know that there will be gaps in this document.  If you would like to contribute to future versions, please send me your suggestions to andrew@winstoncapital.com.au, and we will, to the best of our ability, incorporate them in future editions.  All work will be acknowledged.

Some easier steps along the path to in-house investment management – 8 February 2017

This article is a reprint from Professional Planner, which can be accessed by clicking on this link.

Over the last decade, numerous independent financial advisers (IFA) have taken the investment management function in-house, setting up multi-asset portfolios, supported by managed account platforms (but not exclusively so) to better manage their clients’ wealth. This trend has been well documented, and has resulted in the strong share price performance of most listed managed accounts providers, whilst advisers’ revenues have also risen, to the detriment of managed funds and traditional platforms, which are losing business to these new providers.

Four factors have converged to make the move to bring investment management in-house possible:

  1. The rise of nimble, hungry managed account providers with the technology, regulatory and administrative tools that make it possible for advisers to launch their own public offer, multi-asset portfolio services, for little capital expenditure
  2. The need for independent advisers to stay financially viable when competing with cross-subsidised institutional wealth managers, by providing a standalone, separately priced investment offer, considering Future of Financial Advice changes to conflicted remuneration
  3. The desire to lower investment costs in a competitive environment, which has led to an increased use of direct assets – including direct shares, listed investment companies, exchange-traded products, exchange-traded funds, real-estate investment trusts, bonds etc – which managed accounts typically favour over managed funds
  4. The rise of small, yet experienced consultants (as well as the traditional research houses), with experience assisting advisers with asset allocation policy settings and investment selection and monitoring.

Together, these factors have made it possible for smaller IFAs to vertically integrate, to the benefit of both their businesses and their clients’ wealth, without requiring a large capital expenditure. This trend will probably continue apace, and may even result in some large practices leaving the institutional wealth managers, as they seek to take more control over various aspects of their business.

Where do advisers learn to take this function in-house?

The transition from being an adviser using balanced or sector funds under a traditional financial planning model (e.g., issuing Statements of Advice), to one fully accountable for an implemented investment solution is not trivial. There are many decisions to be made (such as choice of managed account provider, mandate guidelines, consultants, etc.), and internal organisational changes to get right.

Most critical is the need to adopt a robust investment policy framework (IPF) that clearly enunciates the investment strategy the firm will adopt to achieve the mandate objectives. In our experience, there are few ‘off-the-shelf’ guides to walk advisers through a detailed process of setting up an IPF. Such a guide should include the adviser’s investment philosophy and beliefs, linked to a coherent set of investment policies, such as mandate objectives, allowable investments, asset allocation approach (static v dynamic) and ranges, selection and monitoring process, risk management and governance.

These factors all inform the investment committee in its decision-making, as well as serving as a valuable communication tool for clients and employees. The investment committee also needs a charter to ensure that the agreed upon parameters are followed.

To date, managed account providers have provided compliance-led policies and charters for advisers to use, as they are most at risk as the issuer of the adviser’s product disclosure statement. Many of these documents are boilerplate in their design. Furthermore, these policy documents are generally not available for public consumption, so advisers must work many of the details out for themselves, or appoint consultants or research houses to assist them in setting up the investment framework.

It’s fortunate that there is already enough publicly available information to assist advisers in starting to think holistically about the investment model they wish to adopt. See the Future Fund’s statement on its investment model as one example. Over the coming months, taking information from public sources – including industry funds, robo-advisers, sovereign wealth funds and dealer groups – Winston Capital, in conjunction with Professional Planner, will provide a guide to assist advisers in creating a robust investment framework (from compliance to competitive advantage) prior to engaging with any service providers.

In doing so, we hope to improve the management of client wealth in the retail sector in Australia, and give advisers an easy-to-use guide that takes high-quality examples of what is required to manage wealth in a complex operating environment.

‘Reports on the death of the BDM have been greatly exaggerated’ – 23 June 2015

As the part owner of a specialist third party marketing firm, I always ask myself this question… “Why does our business model exist, and what will be the cause of its downfall (other than because of me or indeed, my business partners!)?”  I have reflected on this a great deal. One would expect that product discovery in a digital age would render the role of the professional BDM irrelevant.  That is, why is it that we are able to succeed in a market where information is both abundant and frictionless?  A client needing product X to fill solution Y should easily be able to find this solution without the need of a ‘middleman’, but this is not often the case.  Thus, a critical role played by BDMs is to connect the market place with both new and existing products, assisting in that discovery, and by continuing to provide education around the existing capability; Platinum paid a heavy price by not engaging in the latter activity for many years – they have since changed their approach to stem the outflows.

Having said this, I have been forced to think a little deeper about the continued market acceptance of the BDM role, following comments from experienced market participants that I know, who have opined that BDMs will be extinct within the next ten years; a notion that I disagree with.

First a brief history of BDM’ing

Let’s face it, the world has changed for all of those BDMs who entered the market in the 1990s; saying this makes me feel as old as I look!

Oh those glorious days, where wraps accounts were clamouring (not a typo) to get products onto their menus, where a set of golf balls delivered on a Monday would result in flows on a Tuesday (ok, slight exaggeration; more likely a Wednesday), where there was lack of competition in most asset classes, degrees were a reference to the weather, detailed databases where our bosses could check our activity did not exist, fees were an after thought (unless you were talking with Barry Lambert at Count), regulations were well behind where they should have been, portfolio construction education was in its infancy, research houses played a role, consumers were unsure of what information was right or wrong, but nowhere near as significant as the role they play today, playing golf was every providers’ marketing strategy, and where financial planning was just emerging from the life insurance sales industry.  Because of these factors, we all raised assets under management, but largely because the industry was in start-up phase (‘a rising tide raises all boats’), and not because of any real strategic sales skill (of course, there were exceptions, myself included ;-).

From a BDM (a.k.a. the ‘Brochure Delivery Manager’) point of view, one did not have to be that strategic to get some sales success.  Of course, the great success still went to those firms that had great products and outstanding people (think First State led by Greg Perry; a lot of outstanding sales careers were launched off the back of his investment genius).  Nothing has changed on that front, but a lot of other things have changed that now require BDMs to be better weaponised in order to succeed.

Industry change requires a new approach to sales

Over time, the retail channel (i.e. intermediated market) has become more concentrated, wraps more discerning, dealer groups have become both more expensive and complex to work with, research houses more powerful, consumers are now better informed, advisers having greater constraints (regulation, costs, compliance etc.), competition is more intense, regulation more demanding, fees lower and barriers to entry higher as a result.  The role of the BDM has also changed because of these factors.  From the ‘Brochure Delivery Manager’ in the 1990s, to the ‘Practice Manager’ in the 2000s, to the ‘Portfolio Manager Specialist’ now.  No longer just a good guy/gal with some knowledge on how the industry works but someone with superior intelligence on their subject matter.

It’s because of these dramatic changes that BDMs continue to play an important role

  1. Too much choice allows BDMs to play an important role in helping clients understand those choices,
  2. New products are being launched all the time, which need to be explained to various client segments (think best interests and watch list development),
  3. Clients are time poor and to assume that they are constantly searching for new products is a mistake,
  4. Many underserved client segments do not have the support infrastructure of larger businesses and they appreciate being contacted by providers to hear about good ideas,
  5. Some offers are close ended in nature, offered by highly specialised firms, where only a small number of advisers will participate – knowing where these advisers are and how they will respond to these offers is a key function of any good BDM,
  6. Research houses do not cover all products and a lot of intermediaries do not rely on external research in any event,
  7. The market is now more complex, requiring more skill in connecting customers to ideas, and
  8. Advisers still enjoy going to thought provoking seminars (and not just for CPD points) but to stay on top of the key issues and to network with their peers; organising and planning these events is the domain of the BDM (and not necessarily the marketing department).

Because of these factors, BDMs still have a major role to play in growing sales – digital disruption has not occurred to make product discovery between product providers and customer segments costless (yet).

But in order to succeed today, BDMs need to evolve – the 1990s ain’t coming back  

Provided below are some key knowledge, skill and behavioural attributes that BDMs need to have when operating in a more cut throat environment.  The list is not exhaustive.

Knowledge requirements

  1. Know thy Product.  An in-depth knowledge of the product set that is being sold, the context in which it is being sold, the likely performance characteristics during different phases, the basic features, in-depth knowledge of what the ratings house have said about the product, intimate knowledge of every aspect as laid out in the FSC or AIMA DDQ including governance and service provider information.  Clients should not know more than any BDM on this basic information.
  2. Know thy client.  A thorough understanding of how clients make investment decisions, what their key issues are and what is on their future research agenda.  Also required is a deep understanding of who might influence those investment decisions (internal and external). With that, a BDM can intelligently engage with their clients.  BDMs have to be skilled in client interrogation, gathering facts directly and indirectly to do this well.
  3. Know thy enemy.  A complete knowledge of the competitor set that is far deeper than just basic product features, to knowing the actual team size and experience, ratings (pros and cons), performance over multiple time periods (on a range of measures), key holdings and how they are different, and how you blend (to go from competition to coopetition) etc.  BDMs need to spend more time analysing data, and doing so on a regular basis.  Simple cheat sheets can help here.
  4. Know thy market. An acute understanding of the key portfolio trends that might be changing the investment landscape (e.g. objective based investing, lower for longer, sequencing risk, longevity risk etc.), in addition to being able to converse well on the key economic themes of the day (e.g. Fed hikes, China stock bubble/Aussie housing bubble, Grexit etc.).  BDMs need to spend more time reading and then thinking the big issues through – “how do these issues impact my strategy; what are my clients worried about?” etc.
  5. Know thy industry. Knowledge of how the changing shape of the industry will impact the sales strategy (e.g. the rise of small consultants, FoFA and its impacts, the rise of managed accounts, the dealer as the investment manager, smaller APLs requiring higher ratings, a preference for direct investing over investing in funds, low fees on market beta and high fees on TRUE alpha, high minimum thresholds for wrap approvals, in-house products over external ones, robo advice etc.).  BDMs need to understand where they will win or lose as the industry reshapes (and this is a continual process) and then respond accordingly.


Skill requirements

  1. Sales planning and pipeline development.  BDMs have to think like self-employed business people – they need the discipline to manage their pipeline and to analyse their own financial performance (revenue generated, versus my direct and indirect costs) – what is working what is not etc.  The pipeline is a live document that should be updated in real time, with activities directly (or indirectly) related to increasing sales.  This requires client servicing and prospecting skills to effectively grow the pipeline and to increase the probabilities of activities leading to sales.
  2. Superior communicator.  To explain complex themes and principles more easily, BDMs need to become brilliant communicators; let’s face it, very few PMs pass this test.  So BDMs need to think about… “When I leave the meeting today, I want the client to remember these two key points” and if a BDM, ask yourself… “How is my presentation structured to meet that objective?”
  3. Cross channel marketing skill. The ability to work across different channels, each with different buying characteristics is a critical skill.  Today’s BDMs need to think and act differently, as the retail market becomes more institutional – a side effect may be less BDMs in time (but not extinction).  Thus, the BDM needs to be able to easily navigate between speaking with a dealer CIO, family office IC or a research analyst or at a ‘mum and dad’ seminar – the message needs to change with each audience but never losing site of the critical points.  This is where having the knowledge requirements listed above plays such an important role.
  4. Negotiator.  The ability to complete complex negotiations.  Don’t just come to the sales meeting and say “we will win the business if we drop our fees by x amount, what should we do?”…  Come to the meeting with a recommendation on how to win the business showing the P&L impact and the impact on the existing business of any such deal. Think and act strategically.
  5. Innovate or die.  Raising sales requires a level of innovation.  Innovation can only come from superior market knowledge.  You might find a gap in the market or a different way to package the fund manager skill with this knowledge well before the rest of the market catches on.  This does require the funds management organisation to play ball – e.g. there are still many fund managers that will not provide their skill as SMAs, incorrectly fearing IP leakage.  The horse has already bolted.  And it is changing; Magellan’s recently launched exchange traded managed fund will open a new market for everyone else to follow where it makes sense.


Behavioural requirements

  1. Transparent and open.  Gone are the days where a portfolio manager could sit away and just manage a portfolio.  BDMs have to act as the bridge between the PMs and the clients by demanding full disclosure and accepting nothing less.
  2. Polite persistence.  Don’t take it personally when someone does not return your call.  Most people won’t.  But to give up on one knock back is not the pathway to success.  Try a different route to get to the decision maker, send them articles of interest that you know, get an introduction through someone else you know, invite them to a sponsored event.
  3. Be decent. (I struggle here, so I have been told…).  Put your client at the centre of your world, add value to them even when you may not get a direct benefit – a referral here and there, organising a meeting with someone in the industry that they will benefit from, an invitation to an industry event etc.  Great and trusting relationships are formed this way, and relationships still matter!
  4. Patience.  Because the market is more complex, decision cycles take longer than in the past.  So, be patient!  For an adviser to start using your product, requires enormous effort on their behalf and you are just one of many competing for a valuable slice of their client portfolios – you have to stand out; and standing out requires, great product matched with superior knowledge, skills and behaviours.


I’m bullish on the future for good BDMs

The future for professional sales has never been brighter, but to succeed today, BDMs need to work harder on understanding their clients, industry trends, competitor actions, their role within the market and the market/political environment in general – to do this, they need to devote much more time to research before engaging with customers (except when doing market research that directly involves speaking with customers).  More time on communication skills and less time on just talking.  More time on personal education and less time regurgitating other people’s opinions and more time on doing the right activity with those segments of the market where the products have most likelihood of succeeding.

And whilst I do reminisce about the 1990s (I was never good at golf, so I don’t miss it that much), the current environment is a great one where perseverance and intelligent execution are being rewarded.

Andrew Fairweather, Founding Partner.


“Reports of my death have been greatly exaggerated”

The expression derives from the popular form of a longer statement by the American writer, Mark Twain, which appeared in the New York Journal of 2 June 1897: ‘The report of my death was an exaggeration’. The correction was occasioned by newspaper accounts of Twain’s being ill or dead. At the time, Twain’s cousin James Ross Clemens was seriously ill in London, and appears that some reports confused him with Samuel Langhorne Clemens (Mark Twain). 

How managed accounts are redefining the independent advice market – 2 June 2014

For many years, the managed account industry has promised so much, but has failed to really fire, when compared with the incumbent administration solutions provided by the wrap and masterfund platforms. As an industry participant, this has never really made sense to me because managed accounts seem like such a sensible evolution in the provision of administration and asset management services in a world where transparency, portfolio customisation and individual tax management are such important requirements for investors. Especially those high net worth ones.

But alas, the structural reasons why managed accounts have not taken off are plain for all to see. It does not make immediate economic sense for the large wrap providers to cannibalise their dominant market positions by allowing access of these outside run managed account platforms for their planners to use, when those planners are owned by the same entities that own the wrap platforms – they will get there when they have to.   But in fairness to the existing wrap administration providers, they do actually provide incredible functionality and integrated services (e.g. risk, non-super, super, pension, direct shares, family pricing, portfolio rebalancing and modelling etc).  That is, they work very well for both advisers and their clients.

In addition to the structural reasons, advisers, even when faced with a ‘superior’ solution can be reluctant to change from one administration solution to another because of the costs it enforces on their business, and offering more than one is a headache that not even Panadol can cure, especially for smaller firms.

Lastly, whilst the managed account platforms are right for some clients, they may not be right for all.  Consider the following Pros and Cons of the managed account platforms:-


  1. Beneficial ownership of the underlying investments,
  2. Portability of portfolios,
  3. The ability to manage for after tax outcomes,
  4. Full transparency of underlying holdings where SMA models and direct investments are held,
  5. Consolidated reporting,
  6. Can improve work flows for the adviser,
  7. Removes unit trust administration costs (but is replaced by managed account fees and charges),
  8. Real time reporting of performance, and
  9. No more ROAs where the dealer is appointed the investment manager or where using an external model manager.



  1. Not all corporate actions can be included e.g. institutional placements,
  2. Diversification challenges e.g. lack of hedge fund access and hard to use derivatives for risk management purposes,
  3. Execution risk i.e. from delayed implementation,
  4. Execution costs can be high although the better platforms have the industries lowest cost of execution (e.g. <5 bps after netting),
  5. An MDA Operator requires the adviser to go back to the client each year for their opt in to continue, while the service offered under a PDS does not require this,
  6. May not be able to report on legacy products,
  7. Not great for illiquid assets (although they can be reported on where a valuation can be provided),
  8. May not have a superannuation version of the managed account platform limiting the appeal to SMSFs only,
  9. May not be able to integrate life insurance options, and
  10. Very difficult to pass rebate discounts from investments managers back to the end investors (same for wrap accounts but not so for multi asset unit trusts).


Why is the time right now for managed accounts to have their time in the sun?

We all know the stats.   80% of the advice market is owned by the big four banks, AMP/AXA and IOOF/SFG, leaving just 20% of self licensees to fend for themselves in a FoFA environment where vertical integration is close to impossible to achieve.  The ability to clip the ticket across advice, platforms, dealers services and investment management puts these larger groups at a distinct advantage when compared to smaller groups, who may find that achieving similar outcomes very difficult to achieve on a standalone basis.

For small independent licensees, the ability to create a revenue generating funds management capability is simply a bridge too far to cross, given the capital intensity of creating a true multi asset portfolio management capability.

Come in managed accounts…

Managed accounts are enabling many independent groups to become investment managers by leveraging the managed accounts technology, balance sheet and regulatory frameworks, where those advisers can legitimately charge an investment management fee as the implemented model portfolio manager.

As such, for very little start up cost, an adviser who may have been running model portfolios on an existing wrap platform, (with the assistance of a research house or consultant), can now turn that capability into a new line of business with separate pricing and revenue streams by partnering with an appropriate managed account platform.

Importantly, these same vertical integration (and FoFA compliant) benefits can be achieved through the creation of multi asset unit trust structures, which has been achieved by groups like Fitzpatrick through their investment arm Atrium, Infocus, through Alpha, Centrepoint through Ventura and various dealers advised by Select in DMG, Profile, Stonehouse and MGD Wealth.  These unit trusts can exist on an advisers existing platform (albeit platforms have onerous requirements to get these trusts listed in general), which therefore requires less change in the advisers practice, however, many of the Pros listed above cannot be achieved in through this structure.

But if an adviser is to go down the route of becoming an investment manager, enabled by a managed account provider, it may require a rethinking of how advice is charged for. Traditionally, advisers have charged an asset based fee to cover all services (outside of risk), essentially creating a conflict between wealth invested and actual advice needs.  For example, a recontribution strategy should be priced for the time it takes to deliver and implement that advice, plus a risk premium to cover for PI, with investment management charged separately.  There should be no link between the two, although this has been the traditional model, and will be the most challenging aspect to deal with for any dealer wishing to become a legitimate investment manager, as an adjunct to their advice proposition.  In today’s markets, consumers want to understand what they are paying for and what they are getting for those fees.

The point of all this is to highlight that a change in one aspect of a business model will have an impact on another, hence why any change should be considered and planned for carefully.

Additionally, the large platforms are backed by companies with significant balance sheets, which allows them to continually reinvest – this advantage is not to be understated by any adviser who may be looking to make the change, from a business risk point of view.

Welcome to the Managed Accounts Arms Race

arms race

Given the independent market is small (and getting smaller), and given the incentives provided to move to the ‘dealer as the investment manager’ model, it is no wonder that the existing managed account providers have entered an arms race to capture that territory, before it is locked away.  This is sales bloodsport!

The combatants in this race include ASX listed Praemium and Hub24 and soon to be listed, and Thorney (also an investor in Hub24) and Perpetual backed OneVue and Managedaccounts.com.au, alongside the private players in Linear (who is part owned by Bendigo Bank) and Mason Stevens.  No doubt there will be consolidation in this sector in time to get true economies, but even at low relative funds under management, the listed players are now cash flow positive.

In addition to these hungry entrepreneurial groups, the big providers including BT, through their NextGen project, and Macquarie, are spending up big in order to offer multi asset managed account capabilities.  Netwealth may be ready for their launch later this year too.

Blow up risk?

The managed account providers have a lot to lose with any ‘dealer as the investment manager’ that decides to go off the ranch in terms of investment strategy – after all, they are taking the regulatory risk, as the issuer of the dealers PDS when offered as an MIS. I rate this risk as very low, however, because the managed accounts are assisting (and requiring) that the dealers create formal investment charters, performance objectives, asset class ranges, allowable investments and mandate limits.   Further, they are generally requiring the services of an experienced consultant to beef up the internal investment resources (which should be a new source of opportunity for smaller consultants – Ibbotson, Philo and Select are very active in this market already). Most importantly, the managed accounts monitor every trade and portfolio change to ensure they are within these limits at the asset, manager and individual security level, which they call ‘models’.

Who wins and who loses in this new world?

Based on the Pros listed above, the winners in this new world may include:

  1. Direct assets (e.g. cash, TDs, fixed income and Australian equities),
  2. Listed Investment Companies,
  3. Stock brokers and online brokers,
  4. Exchange Traded Funds,
  5. Fund managers who can deliver their IP in an SMA or IMA format,
  6. Smaller consultants,
  7. Any mFund listed managed fund, and
  8. High alpha and specialist managed funds (where liquid).


The losers may include: –

  1. Traditional managed funds (e.g. benchmark aware),
  2. Multi manager portfolios, and
  3. Wrap accounts (but not in my lifetime).


As always, the future is uncertain, however, it is my view that what was once a trend (and a potential opportunity) is now fast becoming an embedded business model for many self licensed dealer groups, which will assist them in sustaining their own businesses from these new sources of investment management revenue.  This can only be a good thing for competition and consumers.

Andrew Fairweather, Founding Partner and Managing Director