IMAs – The Merging of Advice and Asset management

STUART HOLDSWORTH considers how advisers and asset managers can improve their value proposition to investors.

I have read some interesting articles and papers from the other side of the Pacific recently that are bringing what appears to be a new angle on the role of the asset managers in the industry and their relationship with advisers. Key takeaways included that due to the ever-increasing competition and margin pressure, asset managers and advisers together have to work and consider ways to improve their value proposition to end investors. In an intensely competitive market, and one where an increasing number of investors are becoming self-directed, this may become a necessity to justify fee levels, and the relevance of their roles.

The focus on the need for relevance highlights that not only must advisers be seeking solutions for clients that maximise their wealth using asset managers, but they also must consider the need to help the client reach their life goals, which, due to tax and other structural considerations, depends on more factors than just fund performance.

So how does this relate to asset management? Does this mean the asset fund managers should just focus on getting the best return for their investor clients, or does it mean they should focus on getting the closest alignment to the life goals of their end investing clients? Funds with strict mandates (so that the adviser has high levels of certainty as to the outcome, such as index funds and ETFs) are clearly part of the solution. Yet a fund by its structure treats all investors the same, meaning it, by definition, cannot consider the individual needs and goals of each investor. The existence of the fund trust entity to a large extent ‘dilutes’ and ‘merges’ any consideration of the investors’ specific life or financial goals.

A structure such as an individually managed account (IMA) can provide far superior consideration of each individual investor’s goals to that of a fund, as IMAs can combine the best of the asset manager’s skills with input from the adviser, who is working for the client. This combination should provide what should be the best outcome for the client to meet their specific goals. To a large extent, an IMA is the merging of the advice and the asset management processes which ultimately should best help the investor achieve their investment, and life, goals.

The related advice model for IMAs is that advisers can increase their relevance and ability to align with a client’s life and financial goals by not just selecting an asset manager by the election of a ‘product’, but actually providing input to the way that the assets are managed in the context of each client’s specific goals. Advisers using IMAs can extend their role in investment from being product ‘selectors’ (which can be done over the Internet these days) to product ‘directors’. This new type of adviser / asset manager relationship then changes from being one of a ‘distribution’ model to one of a ‘service’ model, deepening relationships and providing additional opportunities for value creation.

With the shift to fee-based advice, models will invariably come to a shift to improved service and relevance. Perhaps the shift in adviser remuneration to fee-based could be the key to the growth of IMAs in Australia.