Client portfolio management in a time of crisis
This week’s Monday Reflection encouraged business managers to use the current mandated “hibernation” period to update and continue their strategic planning and rollout.
As many readers would be aware, Philo is a provider of managed discretionary account (MDA) services, and the article prompted some questions on how MDAs are being used to respond to current market conditions and what it means for planning firms. We felt the answers were interesting enough to share.
Current use and impact of managed accounts
Firstly, Philo has developed a range of MDA services with different advice firms and asset consultants and this means that the nature and timing of their investment decisions are as individual as they are. Some of the more common themes however are that:
We have seen a number of model managers, already modestly underweight growth assets leading into the crisis, rebalance to their pre-crisis target after the large falls in equity markets. Less commonly, we have seen some small increase in exposure to equity exposure relative to pre-crisis targets, but not large allocation changes.
In the last week or so we are seeing model managers increase liquidity in portfolios in anticipation of future buying opportunities. Having said that, model managers don’t have high conviction that “risk on” is the next direction and a number are waiting for stronger insights on how the world economy is likely to come out of the pandemic.
Where direct equity holdings are concerned, the size of the trades has been larger in percentage of portfolio terms than normal. We have also seen more frequent trading of direct equity portfolios
How each trade plays out in investment terms will be judged over months, not days. However, what is interesting to us is that:
Clients portfolios are being traded more frequently than normal and portfolio managers are not constrained in the way advisers are by the administrative burden and cost of client portfolio changes.
We are seeing a reasonable amount of two stage trading. i.e. selling one thing and then sitting in cash for days or weeks waiting before the next trade is decided upon. Again, a luxury generally less used in SOA/ROA based approaches to managing client portfolios due to the administration burden.
Model managers are absolutely aware and sensitive to liquidity and transaction cost, especially as it relates to credit based and alternative investments of late.
Advice firms are thankful where they have clients invested in managed account services, but also frustrated where they are only part way through the transition to managed accounts and aware that the clients who have not been transitioned cannot be managed as actively.
How quickly planners can access MDA services from Philo
We have also had advisers asking how quickly managed account services can be established.
The answer here is again not uniform, but in simple terms:
For those willing to use an existing standard set of model portfolios offered by one of a number of asset consultants that have been appointed by Philo, it is possible to be up and running in 4 to 6 weeks.
For those wanting a tailored set of portfolios, potentially with the support of an asset consultant we have not worked with before, the timetable could be 3 to 6 months – or longer depending on how long the planning firm takes to make key decisions required to finalise the service.
For some firms, a combined strategy may suit. i.e. move quickly to a standard service with a view to tailoring it in time, as circumstances allow. This can be accommodated with a modest amount of planning.
The overarching theme is where a planning firm has clients in an MDA service, they have enormous flexibility to trade when they feel they need to and that their client portfolios will be adjusted quickly and equitably. Whilst decision makers are always mindful of tax and transaction costs, they do not have to concern themselves with the internal administrative burden that manual implementation of investment decisions entails. For these planning groups, the stresses associated with the current environment are that much less and their clients are receiving more active management of their portfolios.
If you would like to know more about how an MDA service could help your business, please drop me a line by return email or call one of the following.
Brett Sanders 0438 071 094
brett.sanders@philocapital.com.au
Toby Potter 0414 443 236
toby.potter@philocapital.com.au
Mathew Birch 0411 114 355
mathew.birch@philocapital.com.au
James Freeman 0428 644 208
james.freeman@philocapital.com.au
Regards,
Brett Sanders