Good time to be in managed accounts: IMAP

The COVID-19 crash has had an effect on all investment advice, but for financial advisers using managed accounts the blow has been slightly eased, according to IMAP chair Toby Potter.

Potter told Financial Standard that while it is likely managed account portfolios will have been affected in similar ways to any other portfolio, the impact has not been felt as extremely.

"You'd hope that because managed account portfolios are subject to a pretty rigorous investment management process, that the returns in the risk adjusted sense are likely to be superior to less structured approaches, such as those of individual advisers," Potter explained.

"The key benefit for clients and advisers using a managed account structure, compared to advisers taking on individual responsibility for portfolios, is the confidence advisers can have in being able to manage communications with their client base, knowing there is a systematic process of actually managing the portfolios."

Potter said this is the 'no client left behind' effect.

"That is the reality of it. You think of an adviser with 100 clients in these circumstances, who do they call first? Do they wait for each client to call, or do they have to prioritise one over the other?" he asked.

"An adviser who is trying to manage portfolios themselves without the benefit of a managed account structure has all these choices to make at a time when the market is so volatile."

Potter said advisers then have the luxury of being able to tell a client exactly what their view is and what they are doing about it, knowing that the same applies for all their clients.

"They don't have to try and manage portfolios one by one," he said.

"There is a psychological advantage for advisers for using managed accounts, particularly when the structure is managed by an investment committee and competent professionals."

"There is an element of social distancing in this."

Challenges faced by advisers who aspire to be investment managers is the very strict fiduciary obligations they hold to their clients, along with the emotional obligations to help clients meet their goals.

"Using a managed account has that important benefit that advisers can focus on the client side and know the investment side is being handled by professionals," Potter said.

"COVID-19 obviously has a significant impact on the way in which advisers are managing their relationships with clients, but it is a secondary consideration to the market turmoil."

Potter said no adviser has the time, in the current circumstances, to manage their clients and investment portfolios.

"If they are doing one they are not doing the other, and both require a certain level of professionalism," he said.

"At a time like this is when you realise how important that is. This is when you realise just how important that proper role definition, and structure of responsibility is."

Potter said he expects when the portfolio measurements come out in June there will be a significant market effect of managed account portfolios, just as there has been on others.

"But, you'd hope that effect is less than what would have been the case than for clients whose portfolios were managed one-by-one by advisers," Potter said.

Read our full COVID-19 news coverage and analysis here.

Read more: Managed accountsCOVID-19IMAPToby PotterCoronavirus
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