Directly Managed Client Portfolio
Investment Solutions | Wealth Management Solutions | Significant Wealth Owner Solutions

Tristan Bowman, Manager David Clark, Director Anne-Marie Tassoni, Partner

Portfolio investors in the US have had the benefit of managed, directly invested portfolios for well over 25 years. That is, clients have specific direct ownership of their underlying investments which are directed by a manager(s). The client receives a strategically planned portfolio, managed in real time, which is fully transparent as to holdings, trading, costs and performance.
Posted 20 April 2018

Portfolio investors in the US have had the benefit of managed, directly invested portfolios for well over 25 years. That is, clients have specific direct ownership of their underlying investments which are directed by a manager(s). The client receives a strategically planned portfolio, managed in real time, which is fully transparent as to holdings, trading, costs and performance.

In Australia, this form of portfolio management had been slower to take on, largely due to the embedded influence of bank and insurance company controlled financial planning and wealth management. The current Banking Royal Commission provides ample evidence of the banks' vested interest in not adopting more transparent and effective models like directly managed client portfolios. However, the good news is this is now changing quite rapidly.

As at December 2017, funds under management in managed accounts amounted to over $57bn of assets, a 45% increase on the 2016 figure. Whilst still a small part of the total investor pie, the rapid growth is a sign that investors are pivoting towards discretionary portfolio management.

Cameron Harrison and its partners have been at the forefront of directly managed client portfolios for over 25 years and are specifically licensed by ASIC to provide this service. We welcome its broader adoption in Australia as we consider it being vastly better for clients’ interests, especially when compared to the alternatives of financial planning platforms and broker commission trading.

Cameron Harrison operates directly invested and managed portfolios for its clients through its Complete Investment Solution and Complete Superannuation Solution, providing bespoke and professional portfolio management based on 25 years of experience managing client portfolios.

A ‘managed account’ is a portfolio structure where a professional investment manager is appointed to manage the investments in the portfolio on behalf of the investor. That is, the investment manager has the ability to execute trades on the investor’s behalf without the need for client approval of each individual transaction, as long as the transaction accords with the pre-agreed investment strategy and policy. All managed investments are held directly by the client.

The term ‘managed account’ covers several types of account structures which have their differences:

  • Separately Managed Account (SMA) – a portfolio of direct stocks managed on behalf of investors, typically with no investor discretion on inclusions/exclusions and invested according to a manager-constructed model portfolio

  • Individually Managed Account (IMA) – a customised SMA where the portfolio manager takes into account individual investor tax considerations and risk tolerances

  • Managed Discretionary Account (MDA) – an account where the portfolio manager can use discretion in the investment process to modify the portfolio to match the investor’s goals, risk tolerance, and tax considerations

The primary difference between a managed account and a traditional broker/adviser structure is that portfolios are managed on behalf of the client, with no need for approval or a record of advice to be given before trades are executed. This fundamental difference means that portfolios are managed more time and cost efficiently, allowing the client-adviser relationship to be more focused on higher-level strategic matters, such as long-term wealth planning rather than short-term stock selection.

Let us take the example of Bob and Mary. Bob and Mary have just sold their family business for $8 million. Other than their principal residence, these proceeds are their sole investment wealth, having consistently reinvested back into the business over 35 years. They are now faced with assessing and determining how best to invest and manage their $8 million portfolio.

In broad terms, Bob and Mary can:

  • Use a traditional broker/adviser – where the broker/adviser would contact Bob and Mary each time with a stock recommendation and seek approval to proceed

  • Invest through a financial planner-aligned platform with managed funds – where complete decision-making authority would rest with the investment manager

  • Use a managed discretionary account provider – where Bob and Mary would decide on which investment strategy to adopt, and then the manager would be authorised to implement transactions continuously and in real time to deliver that strategy

Better client-adviser communication
A broker/adviser without a managed account licence must first obtain approval from the client before any trade is placed. This takes time, both to prepare the advice and for the client to approve any trades. Particularly in volatile markets, even a short delay in between the time the advice is issued and the time the client approves that advice can be costly.

With an MDA arrangement, less time is spent on implementation and administration, and more on strategic plans and advice. Instead of discussing what to buy and sell, the conversation can focus on long-term client goals and how to achieve these. Instead of “why are we selling a quarter of our ANZ holding?”, the question should be “how are we tracking to our five-year plan?”

Bespoke investment
Investors can tailor their portfolio by including (or excluding) particular companies, a capability not available in a managed fund structure, or by adjusting their asset allocation from the model portfolio. For example, a client may wish to exclude tobacco or gaming companies from their portfolio, or hold a larger portion of international equities.

Transparency through direct investment
Through directly invested managed accounts, you know exactly what you are invested in at any point in time. It also means assets can be moved in or out at any time, giving more portability and flexibility to clients.

Professional investment management
Discretionary managed account licences are issued by ASIC and require the adviser to have substantial investment management experience. A long-term track record of managing model portfolios is one factor ASIC will consider before granting an MDA licence, of which there are 254 currently issued in Australia out of a total of 6,194 financial licensees.

Efficient tax management
By investing directly, tax outcomes can be better managed by adjusting the model portfolio to manage long-term capital gain positions over time. This takes into account the client’s specific circumstances. In a fund structure, all clients receive the same tax outcome.

A directly invested, managed portfolio is suited to those investors who value a high level of transparency and accountability through directly owning their shares, bonds and property, but do not want the responsibility or hassle of day-to-day decision making, management or administration. They wish to see for themselves their investment positions, what activity is occurring and how they are performing to plan. The major benefit of managed accounts overall is that it allows for more efficient implementation of the agreed investment program and a greater focus on individual client strategy, plans and personal objectives, leading to better long-term outcomes.

Cameron Harrison’s partners have been delivering specialist advice to business owners and families for over 50 years. Through our defined planning methodology, our clients gain access and receive a careful and properly integrated wealth framework.

For more information on our approach to directly invested and managed portfolios or any other inquiries, please contact us on +613 9655 5000.

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