A brave new world?

Michael Heine | Managing Director

What are the key issues we need to address?

Avoid bad investments

Reduce total fees to client

Improve productivity of

advisers

Enhance client engagement

Enhance client outcomes

Meet client best interest

Be prepared for changes that

may result from FSI

A changing consumer market

The rise of the self-directed investor

The rise of the self-directed investor and SMSF • Starting out without an adviser • Sacking the adviser • SMSFs SMSF issues • Advised vs non advised • Don’t like paying any fees at all • Like direct equities • Don’t like managed funds due

fees and performance – (will mfunds take off with SMSF’s?)

• Like control

Addressing the issues

Advice • Structure and

ownership issues • Product flog • Cottage industry

or mature? • Scaled advice?

Fees • Adviser fees • Platform fees • Investment fees

Investments • Advisers and

clients seeking higher returns

• Matching risk profiles

• Research • Management

Productivity • Adviser • Platform

The arrival of Managed Accounts – at last!

Managed Accounts

The arrival

• Structure and ownership issues • Been talked about for long time • Growing FUM but still small • Significant opportunity • Niche players to date but now

mainstream

Reasons for growth

• Ease of administration • Professional investment management • Growth of Model Managers • Fees • Transparency • Tax efficiency • Technology • Adviser awareness

Notify changes or recommend to rebalance

client portfolio

Each client portfolio

individually reviewed

Client rules & exceptions considered individually

Calculate buy/sell for each

client

Issue ROA for

each client

Implement changes for each client

Monitor implementation

for each client

Rebalancing – the old versus the new

Notify changes or recommend to rebalance client portfolio

Managed account provider rebalances all clients immediately taking into

account all rules & exceptions

A Managed Accounts service is a complex ecosystem

Managed Accounts must provide

Simple and robust legal structure Ability to calculate and implement multiple and complex models All asset classes and sub asset classes including diversified

models Multiple Managers Multiple Models Ability to blend models Extensive rules and exceptions at parent and client level Superannuation accounts Extensive performance reporting across Managed accounts and

platform Efficient trading engine Highly personalised client portfolios Tight integration within platform – not stand alone product

Model performance vs. shadow portfolio

Number of assets in

model

Size of client

account

Minimum trade value

Minimum holding value

Market impact of

orders

Pricing of assets and

liquidity

Examples

Minimum trade size $100 $250 $250 $100 $250 $250 $100 $250 $250

Minimum holding $250 $500 $1,000 $250 $500 $1,000 $250 $500 $1,000

Client portfolio size

$25,000 $25,000 $25,000 $50,000 $50,000 $50,000 $100,000 $100,000 $100,000

Stocks not purchased at all 5 10 16 0 2 8 0 0 2

Deviation from target portfolio 3.8% 10.6% 29.57% 0.38% 1% 10.87% 0.19% 0.19% 1.19%

Total # assets 34 Average % per asset 3.00% Percentage range 1% - 5%

Models

Tracking existing managed funds

performance

• Mainly domestic equities at present

• Issues of IP – blackout periods

• Preservation of margin by fund manager

• Ensuring lower costs in Managed Accounts

Multi Manager Models

• Reduced costs • Greater transparency

Dealer Models

• Investment skills • Opportunity to add

revenue

Will Managed accounts be cheaper?

Research obligations

Compliance

• Operator has RE responsibilities

• In super, Trustee has responsibilities

Managers

• Fund managers • Model managers • Dealer group models

Mandate

• Clear, precise and trackable

• Constantly monitored by operator

Take outs

• Structural changes in advice industry to continue / greater IFA share • Pressure on fees at all levels • Continuing enhanced regulator oversight • Cost pressures continue • Rise of the self directed investor • New technology challenges existing structures • ???? Future of independent platforms ???? • Platforms servicing self directed investors • Growth of ETF’s and Managed Accounts at expense of Managed Funds • Greater need for advice but we must rise to the challenges

Disclaimer

The information in this presentation reflects netwealth Investments Limited’s (‘netwealth’ ABN 85 090 569 109) understanding of existing legislation, proposed legislation, and rulings as at the date of publication. While it is believed the information is accurate and reliable, this is not guaranteed in any way. The financial product advice or information contained in this document is of a general nature only. It has been prepared without taking into account the particular objectives, financial situation or needs of your clients. Applications to invest in a financial product, or use any service provided by netwealth must be made by completing the applicable Disclosure Document which can be obtained from netwealth. Prospective clients should consider the applicable Disclosure Document before deciding to acquire or dispose of the product, or utilise any service offered by netwealth.