The document discusses key issues facing the financial advice industry such as rising self-directed investors, fees, and changing consumer demands. It also examines the growth of managed accounts which provide investment management, professional models, fee transparency, and tight platform integration. Managed accounts are a complex ecosystem that must provide robust structures, multiple models and managers, customization, and efficient trading while meeting compliance and research obligations. Overall, the industry will continue facing structural changes, cost pressures, and new technology challenges.

1. A brave new
world?
Michael Heine | Managing Director

2. What are the key issues we need to address?
Avoid bad investments
Reduce total fees to client
Improve productivity of advisers
Enhance client engagement
Enhance client outcomes
Meet client best interest
Be prepared for changes that may result from FSI

3. A changing consumer market

4. The rise of the self-directed investor
The rise of the self-directed investor and SMSF
•
Starting out without an adviser
•
Sacking the adviser
•
SMSFs
SMSF issues
•Advised vs non advised
•Don’t like paying any fees at all
•Like direct equities
•Don’t like managed funds due fees and performance
–(will mfunds take off with SMSF’s?)
•Like control

5. Addressing the issues
Advice
•Structure and ownership issues
•Product flog
•Cottage industry or mature?
•Scaled advice?
Fees
•Adviser fees
•Platform fees
•Investment fees
Investments
•Advisers and clients seeking higher returns
•Matching risk profiles
•Research
•Management
Productivity
•Adviser
•Platform

6. The arrival of Managed Accounts – at last!

7. Managed Accounts
The arrival
•Structure and ownership issues
•Been talked about for long time
•Growing FUM but still small
•Significant opportunity
•Niche players to date but now mainstream
Reasons for growth
•Ease of administration
•Professional investment management
•Growth of Model Managers
•Fees
•Transparency
•Tax efficiency
•Technology
•Adviser awareness

8. Notify changes or recommend to rebalance client portfolio
Each client portfolio individually reviewed
Client rules & exceptions considered individually
Calculate buy/sell for each client
Issue ROA for each client
Implement changes for each client
Monitor implementation for each client
Rebalancing – the old versus the new
Notify changes or recommend to rebalance client portfolio
Managed account provider rebalances all clients immediately taking into account all rules & exceptions

9. A Managed Accounts service is a complex ecosystem

10. Managed Accounts must provide

Simple and robust legal structure

Ability to calculate and implement multiple and complex models

All asset classes and sub asset classes including diversified models

Multiple Managers

Multiple Models

Ability to blend models

Extensive rules and exceptions at parent and client level

Superannuation accounts

Extensive performance reporting across Managed accounts and platform

Efficient trading engine

Highly personalised client portfolios

Tight integration within platform – not stand alone product

11. Model performance vs. shadow portfolio
Number of assets in model
Size of client account
Minimum trade value
Minimum holding value
Market impact of orders
Pricing of assets and liquidity

12. Examples
Minimum trade size
$100
$250
$250
$100
$250
$250
$100
$250
$250
Minimum holding
$250
$500
$1,000
$250
$500
$1,000
$250
$500
$1,000
Client
portfolio size
$25,000
$25,000
$25,000
$50,000
$50,000
$50,000
$100,000
$100,000
$100,000
Stocks not purchased at all
5
10
16
0
2
8
0
0
2
Deviation from target portfolio
3.8%
10.6%
29.57%
0.38%
1%
10.87%
0.19%
0.19%
1.19%
Total # assets 34 Average % per asset 3.00% Percentage range 1% - 5%

13. Models
Tracking existing managed funds performance
•Mainly domestic equities at present
•Issues of IP – blackout periods
•Preservation of margin by fund manager
•Ensuring lower costs in Managed Accounts
Multi Manager Models
•Reduced costs
•Greater transparency
Dealer Models
•Investment skills
•Opportunity to add revenue

14. Will Managed accounts be cheaper?

15. Research obligations
Compliance
•Operator has RE responsibilities
•In super, Trustee has responsibilities
Managers
•Fund managers
•Model managers
•Dealer group models
Mandate
•Clear, precise and trackable
•Constantly monitored by operator

16. Take outs
•
Structural changes in advice industry to continue / greater IFA share
•
Pressure on fees at all levels
•
Continuing enhanced regulator oversight
•
Cost pressures continue
•
Rise of the self directed investor
•
New technology challenges existing structures
•
???? Future of independent platforms ????
•
Platforms servicing self directed investors
•
Growth of ETF’s and Managed Accounts at expense of Managed Funds
•
Greater need for advice but we must rise to the challenges

17. Disclaimer
The information in this presentation reflects netwealth Investments Limited’s (‘netwealth’ ABN 85 090 569 109) understanding of existing legislation, proposed legislation, and rulings as at the date of publication. While it is believed the information is accurate and reliable, this is not guaranteed in any way. The financial product advice or information contained in this document is of a general nature only. It has been prepared without taking into account the particular objectives, financial situation or needs of your clients. Applications to invest in a financial product, or use any service provided by netwealth must be made by completing the applicable Disclosure Document which can be obtained from netwealth. Prospective clients should consider the applicable Disclosure Document before deciding to acquire or dispose of the product, or utilise any service offered by netwealth.