Compare the Pair (...but why would you?)
Let’s imagine for a brief moment that you are the CEO of an industry fund. And let’s just say that your (not unusual) situation is as follows:
Reasonable investment performance – there or there abouts.
Happy members generally speaking, particularly with younger members and small to medium size portfolio holders.
However, your older members have a disturbing habit of leaving to become customers of non aligned financial planners when their portfolios get over $400k and they want more advice and engagement as they approach retirement.
Very frustrating, isn’t it? Those pesky planners with their ability to tailor portfolios and provide personalised service grabbing your biggest members after they have been with you for years. Making each client feel special and individually catered to. Damn them.
Of course you band together with your industry peers and use your massive advertising budgets to try and reduce the end investor’s buying decision to a simple product choice. Compare the pair; one red apple with another slightly bigger red apple. Who wouldn’t want the biggest apple? But investors still leave your super fund in significant numbers when their portfolios grow to a material size and they really start to focus on pending retirement. Members vote with their feet, seeking a richer and more personalised service that better meets their particular emotional and investment needs. More like apples and oranges in their minds.
By this point, you figure you have to develop some strategies to try and stem this exodus of clients in the mass affluent and high net worth segments. What to do?
Then the strangest thing happens that delights and puzzles you at that same time. You get wind that more and more advisers are productising their wealth management offer by transitioning to separately managed accounts offered via a PDS. Rather than further emphasising their competitive strengths of professional service and personalisation, they are actually putting PDSs in front of clients that make it clear they fit into one of 4 or 5 buckets and that their investment needs will be met by a convenience based multi asset class product. They are turning their oranges into apples!! You sense an opening. You call your marketing manager and say, “we know how to compete with this, lets crank up the advertising campaign”. Still not quite believing your luck, you also buy a tattslotto ticket on the way home.
Philo Capital are managed account experts. We provide managed discretionary account (MDA) services that enable advice firms to deliver scalable portfolio management solutions that enhance, rather than erode, the advice firm’s professional services positioning. They offer more investment choice and flexibility and greater control over the direct and indirect messaging that investors receive. They help advice firms differentiate rather than making them look more like just another product distributor.
The key here is using the right tool for a given job. SMAs are the best tool to serve smaller clients that do not need regular advice and engagement. MDAs are the best tool for serving mass affluent, high net worth and ultra high net worth clients.
For the vast majority of advice businesses therefore, they should be using both structures, not one or the other. If you would like to better understand why this is the case, we’d love to talk to you.