managed accounts 2009

MANAGED ACCOUNTS 2009

CASE STUDY

Setting Up a Managed Account Driven Practice


Our Objective

Highlight why managed accounts are not just another product – they truly integrate advice and administration

Highlight how managed accounts can be used in delivering equities advice to clients

Highlight the value managed accounts can add to a practice – both financially and commercially


Managed Accounts are not all the same

Investment Administration Services is a MDA Operator and Administrator – over $400 million in managed accounts

Enabler for dealers, brokers, investment managers and other licensed entities to create their own Managed Account Service

Dealer as investment manager approach, Investment Manager model approach or an institutional model ie. range of models and managers


What does Dealer as Investment Manager Mean

Dealer can be appointed as an Investment Manager without the need for the dealer to have an MDA license

Own portfolio construction or mandated portfolios (dealer branded portfolios run by dealer selected specialist investment managers) or a combination of both

Asset class models, models across the asset classes or specialist models


Introducing Sam Henderson

Master of Commerce (Financial Planning) (progress)

Bachelor Degree Commerce (Accounting)

Diploma of Financial Services (FP)

Advanced Diploma Financial Services (FP)

Advanced Diploma Marketing Management

Accredited Mortgage Consultant (AMC)

Specialist in retirement & self managed super

Securitor New Financial Adviser of the Year 2004


Who is Henderson Maxwell ?

An award-winning, independently-owned, fee-for-service boutique financial planning firmOffices in Sydney and Melbourne, 8 staff with $130m FUMCater to higher HNWs and businesses, including SMSF’s more than $500,000 to investSpecialise in both retirement and super superannuation strategies


Managing our client’s money – what have been the choices ?

Wrap with wholesale funds and shares

Retail Master trust (same thing but more expensive)

Retail funds using Xplan/ COIN back end admin

Direct shares via broker (maybe Praemium back end)


The problems with using these choices

Every client has different shares and funds

No rationalisation of the investment process

Admin heavy from SoA to review

What if you want to sell ABS across the client base?


Issues with the industry

Supply chain is heavily influenced – one might say “structurally corrupt”Commission focused not fee focusedProduct focused and not strategy focusedRecurring revenue focused not profit focusedBusinesses poorly systemised and managedDealer groups charging a fortune and not giving much back


Issues with the industry

Fee compression occurring - don’t give up your margin!Managed Funds consistently under-performing benchmark

Many of these are opportunities for you to obtain business from institutions via

strategy based advice and innovation in product


So if 80% of managed funds under-perform the index why keep trying and why pay a premium-

stop kidding yourselves!


To date we have had to be ‘set and forget’!!!Major Wrap Service

Poor managed fund templating (limited MDA) and cash managementNegligent use and understanding of shares- trading, corpactions/ divsAverage client fee of 0.55% on eWrap and much higher on MTAverage fee of 0.9% on wholesale managed fundsPoor cash account rates

RetailClunky, inefficient and impossible to administer

Direct fee for serviceWe have had no control or MDA capability


And platforms...

If they can’t do what you want and your clients are paying a premium, then why keep using it?

• Dealer Group?• Volume Bonuses?• Love of managed funds and the traditional

supply chain?


The supply chain problem

Service Deliver/ Cost to

Advice Product Platform TOTAL

Client Pays 0.88% 0.99% 0.55% 2.42%

YOU 0.88% 0.00% 0.22%(VB) 1.10%

Difference 1.32%

Where is it going and are you and your clients getting value?


Increase revenue by 50% and profit by 100%

Who has increased revenue in the past 12 months?

At Henderson Maxwell, our revenue has increased in the past 12 months• Profit up• EBIT % up• Clients happier• Better returns• Lower fees

How – Through Using A Managed Account


Henderson Maxwell definition of an SMA/IMA? IMA - Individually managed account is a, non-templated, individual client account via an MDA that you can manage on a single platform

SMA - Separately Managed Account is a group of client accounts that you manage via an MDA structure using portfolio templates

MDA - Managed Discretionary Account - requires a separate and specialist AFSL usually carried by the provider (eg IAS) and for adviser to provide Investment Options document is required as well as a client contract. Gives dealer investment management capability to change account with dealer discretion without providing further advice to the client via an SoA/ SoAA - saves significant paperwork

IDPS - Investor Directed Portfolio Service - Investor directs portfolio manager to manage account at their discretion - like a fund - a PDS is required


What is your expertise?

Model portfolio - a portfolio using someone else’s investment models cost 0.50-0.80% + platform costs

Custom portfolios - your own portfolios constructed in-house – small additional cost. You manage and make decisions

Individual portfolio - for HNW and high maintenance clients. You manage and make decisions at yours and the client’s discretion


How does a Managed Account actually work?

Before:Each individual account on a wrap platformNo MDAChanged after a review and SoA/ SoAA or clientEg sell out of ABS would take 3-4 days for all clients incl RoFA

Now:Just like a wrap but betterCan sell down across the client base in secondsNo administrationOne staff member - 5 minutes workNo meeting with client, no SoA docs for changes

Better management, more efficient, responsive to market


So how did we transition to IAS ?

1. Problem identification

2. Due Diligence on possible solutions

3. Own AFSL- intended anyway

4. Choice of supplier

5. Due diligence on Henderson Maxwell and agreements

6. Investment Committee and Investment Charter


So, how did we transition to IAS ?7. Portfolio selection, Service definition and finalisation

of Investment Options documentation

8. Client migration - Marketing and SoA/ SoAAcompliance

9. Rollover process and implementation

10.Client management process and ironing out minor issues

11.Ongoing assessment and improvement eg. Coindatafeed, electronic application, online transactions


Advice delivery

Questionnaire and Finametrica risk profile1st Appt- Client presentation on Managed Accounts and benefitsSoA Production and compliance, switching rules and disclosuresSoA presentation – Investment Options document, Managed Accounts client contract, IAS FSG, PDSsSMSF set-up - ABN/ TFN, account set-upClient management and fulfillmentClient review process - print desired reports


How do we manage client’s money?

5 Step Process for the Henderson Maxwell Investment Committee

1. Global Economic Themes2. Asset allocation3. Sector analysis4. Stock Analysis5. Stock and Fund Selection, weighting &

transacting


Research inputs

Internal & Consultants ResearchAegisHuntley’sStockValFarrelly’sLincolnEureka report


Portfolio construction

Portfolio/ Asset

AllocationFixed Interest Conservative

BalancedGrowth+ Ethical

BalancedCash 30-50% 10-100% 5-100% 5-100%

Fixed Interest 50-70% 30-90% 10-50% 5-30%

Aust Property 0% 0-20% 0-20% 0-20%

Aust Shares 0% 0-50% 0-50% 0-70%

Int Shares 0% 0-20% 0-20% 0-30%


Sample portfolioHenderson Maxwell Recommended

Conservative Portfolioas at 31 Jan 2009

Australian Shares

Share ASX CodeFloating

Weight at 31/1/09

Caltex CTX 0.14%Woodside WPL 0.34%WorleyParsons WOR 0.12%BHP Billiton BHP 2.23%Incitec Pivot IPL 0.31%Lihir Gold LGL 0.12%Newcrest Mining NCM 0.27%Gold Bullion Securities GOLD 0.29%OZ Minerals OZL 0.10%RIO Tinto RIO 0.42%Ausenco AAX 0.04%Austal ASB 0.16%Leighton Holdings LEI 0.35%Brambles BXB 0.53%Toll Holdings TOL 0.26%Billabong International BBG 0.26%Crown CWN 0.22%Invocare IVC 0.30%News Corp NWS 0.15%Metcash MTS 0.22%Woolworths WOW 1.49%


Sample portfolioTotal Direct Australian Shares 20.53%SSGA SPDR S&P/ASX 200 ETF Fund STW 1.27%Total Australian Shares 21.81%Property Securities ASX Code WeightStockland SGP 0.29%Mirvac Group MGR 0.24%Westfield Group WDC 0.98%Total Direct Property Securities 1.50%SSGA SPDR S&P/ASX 200 Listed Property ETF Fund SLF 0.00%Total Property Securities 1.50%International Shares ASX Code WeightiShares S&P 500 IVV 1.04%iShares S&P Global 100 IOO 0.00%Total International Shares 1.04%Fixed Income/Debt Securities ASX Code WeightMacquarie CPS MQCPA 5.45%Vanguard Australian Fixed Interest Index Fund VAFI 53.47%Total Fixed Income/Debt Securities 58.92%Cash WeightCash - ANZ Account ( @ 4.25% less 0.35% = 3.90%) 16.73%Total Cash 16.73%Total Portfolio 100.00%

Benchmark Return

Value Add


Industry pressures?

Fee compression is real - don’t let your margin get squeezed!

Clients questioning the supply chain -vertically integrate and own your clients from go to wo

Product rationalisation- active vs Index

Adviser needs to add value via product ANDservice


Own your client and take back your business!!

The CLINCHER! By using a managed account;

Clients save around 0.5% on average

Business increases revenue by 50% and profit by 100% - it’s a true win-win

YOU have total control of the supply chain

Increased fees through investment management fees, brokerage and performance fees




Much better client management - template your whole client base

Practice efficiencies via active portfolio management, MDA so no SoA/ SoAA/ RoFAfor changes

Portfolio Mgt you can truly stand by - your client already thinks you do this!




GUESS What? Who owns the relationship?He who owns the relationship can own the

supply chain!


‘Set and forget’ is no longer a portfolio strategy

Your clients are getting smarter, expecting more and wanting to pay less. Like it or not SMSF and industry funds are the fastest growing sectors in our industry- stop kidding yourself, confront the brutal facts and address the real issues

•It’s challenging•It may take more education•You may lose a client or two

But it’s totally scalable and you will have a better business and be able to provide the service your clients truly deserve


Summary

Managed Accounts• Better returns for your clients• More control for you - greater control of the

investment function• Add to your margin and increase your EBIT• Vertically integrate your practice and reduce supply

chain risk• Provide for reduced administration• Provide a point of difference and Unique Service

Proposition (USP) for higher net worth clients who seek active management


Key Message

Managed Accounts changed the way Henderson Maxwell does business

managed accounts 2009

Documents