Applied Financial Planning

Making comparisons across managed accounts

BY   |  FRIDAY, 3 MAY 2024    8:06AM

Managed accounts or portfolios continue to grow in popularity among advisers.

The technology offered by leading platforms enables transparency and, more importantly, portfolio personalisation at a scale not previously thought possible. Increasingly, it is recognised that some form of personalisation is key to delivering quality outcomes in retirement.

So, if managed accounts hold the key to portfolio personalisation, let's take a look at some of the challenges advisers might face when trying to make meaningful comparisons across performance returns and fees.

Before we dive into the challenges, why is meaningful comparison and measurement important in this space?

The Australian Prudential Regulation Authority (APRA) Choice Heatmap and MySuper Heatmap have brought into focus that the regulator expects trustees to be accountable for long-term net returns delivered for a particular risk profile and that fees should be scrutinised.

So, advisers must oversee the net return outcomes of clients' portfolios and also monitor whether there are better value products available. Both are central to discharging their fiduciary duty.

To do that, confidently comparing a client portfolio with an appropriate reference benchmark and comparing fees and costs is required. But is this easier said than done?

Different comparison points for managed accounts

Undoubtedly, personalisation can make comparison tricky. An individual's starting point and ongoing investment decisions affect return outcomes regardless of whether you are invested in a managed portfolio or a managed fund.

But in a managed account, the platform's trading and rebalancing rules, the client's portfolio size, and their individual preferences, by way of exclusions, can also affect performance outcomes. How best to compare? There are a few levels of performance comparison worth considering:

  • The investment manager's 'model' portfolio returns
  • The platform's 'shadow' portfolio returns
  • The client's actual portfolio returns