While providers of separately managed accounts (SMAs) benefit from high demand due to the transparency of their offering, there is a growing awareness that this comes with a greater need for more clarity and depth of reporting.
Speaking at an Institute of Managed Account Professionals seminar this morning in Sydney, head of Australian equities at Ralton Asset Management, Andrew Stanley, said SMA investors appreciate the transparency of knowing what companies they own.
Stanley, who leads the investment management of Ralton’s managed accounts, says providers therefore need to furnish advisers with a compelling story to tell their clients.
“There is a more of a comprehensive suite of information sent to the advisers,” Stanley said. “It gives them something to talk about, but also if there are problem stocks in the portfolio it’s about arming the adviser with specific information to convey that it’s within the total scope of that portfolio.”
Stanley laments that investors sometimes “can’t get their head around” the manager’s decision-making. He says loss aversion theory is part of why the adviser needs a full picture of the portfolio at hand.
“You’ll never get a phone call thanking you for the ten-bagger but you’ll certainly get phone calls if there’s a 50 per cent falls stock prices,” he says. “Because the portfolios are transparent, the clients can see if there are big swings.”
Stanley notes that another thing providers need to watch out for is turnover.
“Not least because it impacts the tax efficiency of the portfolio, but also because your client gets a printout of all the trades that come through during the year so you don’t want to have them getting an inch and a half thick deck of paper showing all the trades.”
Brett Baker, a director at investment consultancy Evergreen, advocates low turnover but notes that some managers do employ a strategy that involves high turnover – and that’s OK too.
“Your turnover will affect your taxes, there’s no doubt about that,” Baker said to Professional Planner. But you employ a manager to do what you employ them to do. If their strategy is high turnover, they may have a good reason for that.”
Stanley made it clear that investors and their advisers have reasons other than transparency at front of mind when they consider an SMA provider. They want performance first, which incorporates “above market yields, capital growth and tax efficient income on capital gains”.
However, the transparency aspect is something that providers are becoming more cognisant of, and are obliged to cater to. According to Stanley, this means “arming the adviser so that they can address concerns”.
Professional Planner (Tahn Sharpe)