CFS’ head of distribution, Marianne Perkovic, observed that exchange-traded funds had become a much hotter topic among financial planners than managed funds. CFS does allow advisers to plug third-party managed account functionality into its FirstWrap wrap offering (the minimum of which was also slashed last month, from $250,000 to $20,000), Funds managers and the managed account Melbourne-based boutique SG Hiscock is one of the few funds managers whose name is recognised for both institutional mandates and managed accounts. After all, ‘IMAs’ and ‘SMAs’ are acronyms greeted with disdain by some managers, especially those less familiar with retail distribution trends. Some managers are loath to have their name attached to a portfolio for which they are not physically dealing. Most fundies worth their salt would still consider their dealing desk as a value-add.
There is also a belief that providing a portfolio update ‘feed’ to a managed account administrator is a less profitable business than managing the money oneself. However both these concerns are countered by Tim Wood, the assistant portfolio manager for SG Hiscock’s survey-topping concentrated Australian equity fund, SGH 20. SG Hiscock provides three model portfolios to OneVue’s SMA engine, including the SGH 20, and says the service is just as profitable as the boutique’s retail unit trusts, which outsource administration and responsible entity chores to Equity Trustees. Today, these feeds into managed accounts speak for a tiny fraction of the boutique’s $2 billion-plus under management, but Wood is confident his firm has “gotten in early with three providers who will be strong in the market for a long time”. Wood’s feeling is that a OneVue or a HUB24 will never have “hundreds” of different model portfolios – at least not in Australian equities, anyway – so it will pay off to have established a relationship early. Handing over the trading responsibility is not a concern for SG Hiscock, either.
While Wood is proud of the SG Hiscock dealing desk and its addition to performance, he says it would not be practical for the boutique to trade on small SMA-sized parcels of shares in any case. Because the shares in an SMA are held directly in the client’s name, getting an individual portfolio ‘set’ might also involve trading against what the firm’s larger portfolios are doing on any given day, creating a conflict of interest, Wood says. The fund manager observes that managed account technology has finally “caught up to where it needs to be”, and says the three SMA providers to which SG Hiscock provides portfolios now implement the trades the next day. Wood does not necessarily agree with the bold prediction from HUB24 founder and director, Darren Pettiona, that managed accounts will render broad market Australian equity unit trusts obsolete within a couple of years. “I think both have their pros and cons – there are certainly still asset classes and [Australian equity] sectors which you cannot access through an IMA or an SMA. We just think it’s good business to be able to service several channels.”