Are private labelled managed accounts right for you? by netwealth

Trend Hunter Series

Are private labelled managed accounts right for you? Momentum continues at a rapid pace in the adoption of managed accounts, the days of them being a niche service offered by only limited advisers is long gone. With special guests Oreana Portfolio Advisory Service, Context Capital and Netwealth, we explore how private labelled managed accounts can bring together advice, investment management, technology and most importantly the client experience.

25 August 2021 This document is for general use. Modification of content is prohibited unless you have Netwealth’s express prior written consent.

Before we get started

The views expressed in this presentation are those of the author and presenter and do not necessarily reflect those of Netwealth Investments Limited’s. It is a general summary only. It is not advice nor an endorsement of any product or service. Netwealth Investments Limited (Netwealth) (ABN 85 090 569 109, AFS Licence No. 230975) is a provider of superannuation and investment products and services, and information contained within this presentation about Netwealth’s services is of a general nature which does not take into account your individual objectives, financial situation or needs. Any person considering a financial product or service from Netwealth should obtain the relevant disclosure document at www.netwealth.com.au and consider consulting a financial adviser before making a decision before deciding whether to acquire, dispose of, or to continue to hold, an investment in any Netwealth product. This presentation is for general use. Modification of content is prohibited unless you have Netwealth’s express prior written consent.

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Showcasing managed accounts

70 retail managed accounts

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300+ private label models

45 investment managers

Almost $10billion FUM

Why managed accounts? More than four in 10 (42.5%) advice firms use managed accounts today. Source: AdviceTech 2021

Professionally managed

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Investment customisation

Investment Transparency

Tax optimisation

Improved business efficiency

Meet today’s Trend Hunters

James Mantella

Head of Managed Investments Products

Netwealth

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Chris West

Shane Hawke

Context Capital

Oreana Portfolio Advisory Service

Co Founder and Principal Consultant

Head of Research and Advisory Portfolio

Netwealth James Mantella

Head of Managed Investments Products

Netwealth

This document is for general use. Modification of content is prohibited unless you have Netwealth’s express prior written consent.

The evolution of managed accounts Source: Netwealth managed accounts data, as at 31 July 2019

Asset composition 4% Cash & Other 81%

14% ASX Listed

MA model #1

24% ETF 57% Managed funds

+ Listed fixed interest, wholesale investments

Managed account (MA) model

ASX listed securities

+ Overseas listed securities

+ Managed funds

MA model

Private label managed account

MA model #n

“Model of models” same concept as ‘fund of funds’

MA model

MA model Evolution 8

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See Wealth Differently (General Use)

Source: Financial Standard Managed Account Survey 2019

Private label managed accounts The evolution of managed accounts Investment management

1. Consistency 2. Personalisaton 3. Transparency 4. Education & knowledge 5. Cost savings

Customer

Private label managed accounts

33%

• • • • •

Bespoke managed account models In/outsource model management New governance processes Establishment of investment committee Requirements to meet external due diligence standards

Technology

• Platform functionality • Administration expertise

75.7%

improved efficiency

Advice process 9

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See Wealth Differently (General Use)

In-house

Source: 2021 Netwealth AdviceTech Report

• Efficiencies, e.g. Reduction in the need for ROAs and in effort chasing up clients

Managed accounts delivering consistency during volatility Netwealth Managed Account Daily trade Volume (Buy Sell) March/April 2020 Mid Feb 1,849 daily trades

45000

6501.3 40000

7000

42,626

6500

33% of all MA clients traded 70% were ‘buys’

35000

Sell

30000

6000

5542.5

Buy

Changes by managers to their MA models Jan 149 Feb 175 Mar 438 (50% of ~300 managers)

5500

25000

4998.8

All ordinaries (opening) price 5000

20000

4500

15000

12,654 4000

10000

3500 5000

Mar 02, 2020

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Mar 03, 2020

Mar 04, 2020

Mar 05, 2020

Mar 06, 2020

Mar 10, 2020

Mar 11, 2020

See Wealth Differently (General Use)

Mar 12, 2020

Mar 13, 2020

Mar 16, 2020

Mar 17, 2020

Mar 19, 2020

Mar 20, 2020

Mar 23, 2020

Mar 25, 2020

Mar 27, 2020

Mar 30, 2020

Mar 31, 2020

Apr 01, 2020

Apr 02, 2020

Apr 06, 2020

Apr 07, 2020

Apr 08, 2020

Apr 09, 2020

Apr 14, 2020

Apr 15, 2020

3000

Changing the dialogue between you and your client

Managed accounts delivers your articulated investment promise, as it relates to what you have agreed with your client: • Consistently (and reliably treat all clients the same regardless of size) • Personalised • With transparency • And delivering greater knowledge and engagement

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See Wealth Differently (General Use)

Netwealth’s role in private label managed accounts

Responsible Entity Services

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See Wealth Differently (General Use)

Technology and people

Custody and administration

Cost management

A case study in being hands-on Swapping like assets inside the managed account model The action • Those involved: Internal managed account operations team, internal custody team, fund manager and issuer of the ETF and external brokers The situation Investment manager wanted to replace a managed fund with a replicate ETF in their model. They wanted to do this without incurring any buy/sell spread costs to clients invested in the model.

• Manually segregated select clients from the normal daily rebalance process • Implement trades by 1pm • Worked with the custody team to organise a one-off separate order to the fund manager and worked with ETF and external broker to ensure settlement was managed outside the normal automated process The outcome

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See Wealth Differently (General Use)

Lower transaction costs to clients in the managed account model.

Context Capital Chris West

Co Founder and Principal Consultant

Context Capital

ARE PRIVATE LABEL MANAGED ACCOUNTS RIGHT FOR YOU AND YOUR CLIENTS?

25 AUGUST 2021

DISCLAIMER This presentation has been prepared by Context Capital Pty Ltd ABN 91 641 577 317 (Context). This advice is general and does not take into account your objectives, financial situation or needs.You should consider whether the advice is suitable for you and your personal circumstances. All calculations and data presented are deemed to be accurate as at the time of presentation. Any projected pro forma returns or figures on investment are intended for the purpose of illustrative projections to facilitate analysis and are not guaranteed. Past performance is not an indicator of future results.

NO REPRESENTATION ORWARRANTY No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the statements, estimates, opinions, conclusions and other information contained in this presentation. Context does not have any responsibility to update or correct any information contained in this document. To the maximum extent permitted by law, Context and its affiliates and related bodies corporate, and their respective officers, directors, employees, agents and advisors (relevant party), accept no responsibility for any information provided in this presentation, including any forward looking information, and disclaim any liability whatsoever (including, without limitation, any liability arising from fault or negligence) for any direct or indirect loss or damage howsoever arising from any use of this presentation or anything contained in or omitted from this presentation or otherwise arising in connection therewith. Delivery of this presentation does not imply and should not be relied upon as a representation or warranty that there has been.

CONFIDENTIALITY This presentation is for limited circulation and is provided to selected Recipients on a strictly private and confidential basis. No part of this presentation may be circulated, reproduced or provided to any third party, and the matters referred to in it must not be disclosed to third parties, in whole or in part.The relevant parties accept no liability for any loss or damage of any kind arising out of the use or unauthorised reproduction, distribution or transmission of any part of this presentation.

NO AUTHORITY No person other than Context is authorised to give any information or make any representation in connection with the content in this presentation. Any information or representation not so contained may not be relied upon as being authorised by Context. Context Capital Pty Ltd is a Corporate Authorised Representative (CAR No. 128 2338) of AFSL No. 430126. A full copy of the disclaimer and privacy policy of Context may be obtained from https://www.contextcapital.com.au

EVOLVING ADVICE BUSINESSES

SALES • Institutionally Directed • Commission heavy • Cottage industry

SERVICE • Dealer Directed • Fee for Service • Transitioning

STEWARDSHIP • Client centric • Wealth management • Age of the boutique

MANAGED ACCOUNT UNIVERSE

MDA

SMA

IMA

WHY SEPARATELY MANAGED ACCOUNTS?

BENEFITS FOR CLIENTS

BENEFITS FOR ADVICE FIRMS

• Equitable treatment of clients through the removal of implementation drag • Return and risk improvements from ongoing rebalancing • Access to professional investment management • Simple access to diversification • Efficient portfolio changes including \dynamic asset allocation • Better tax efficiency • More transparency

• Improved compliance and a clear way to meet best interests • Business and operational risk management • Efficiency of implementation • Increased value proposition • Reduced operational and research burden

WIDE AVAILABILITY Multi-Asset: 53 managed models available from 9 providers on Netwealth Public Menu

SEPARATELY MANAGED ACCOUNT SPECTRUM

OFF THE SHELF

WHITE LABEL

Different Flavours of Private Label Separately Managed Account

TAILORED

Increasing Levels of Customisation

BESPOKE

SELFDESIGNED

SEPARATELY MANAGED ACCOUNT SPECTRUM

OFF THE SHELF

WHITE LABEL

Different Flavours of Private Label Separately Managed Account

TAILORED

Increasing Levels of Customisation

BESPOKE

SELFDESIGNED

KEY QUESTIONS? • Do you have (or intend to develop) a clear investment philosophy? • Is the way you invest part of your value proposition? • Is your team aligned in your investment approach? • Are you a service business or a stewardship business? • Are you viewing managed accounts through the lens of strategic change management? • Do you have the governance capacity for a private label program? • Are the managed accounts going to be the entirety of your offering or a component? • Why are you thinking about adopting managed accounts? • Is it for your firm? Or is it for your clients?

GOVERNANCE

SKILLS

RESOURCES

TIME

PROCESS

PLATFORMS THE PLATFORM’S PERSPECTIVE Whether the responsible entity (RE) of a managed account is an external provider or the platform’s own RE, they need to consider the approval of a private label managed account from a fiduciary perspective for your clients. Some of the required analysis and documentation includes: • The investment philosophy employed in the development of the portfolios • Stress testing • Scenario analysis • Historical track record • Research and due diligence on the managed funds, ETFS and securities used • Details of the investment process • Business and corporate considerations including business continuity, disaster recovery and cyber security • Review of the capability and experience of the personnel making the investment decisions

OPTION 1 - GO IT ALONE Suitable for wealth management firms with a significant internal team, access to professional resources, strong governance and a well-resourced Investment Committee. M aximises control Truly unique to the firm Aligned with pre-managed accounts value proposition X

Risk of conflicted remuneration

Vertical integration

Solely reliant on internal resources, platform will need to consider capability and track record of internal team

Highest operational risk

ABC Avice Firm Clients

Platform Responsible Entity and Superannuation Trustee Appointment

Advice

ABC Advice Firm or related party as M odel M anager

Investments (Managed Funds, ETFs,Securities)

OPTION 2 - COLLABORATE Suitable for wealth management firms with some internal resources, a formal Investment Committee and some internal investment speciality, most commonly a direct share investment program. Greater flexibility to appoint and remove model manager or asset consultant Can incorporate the intellectual capital of the internal team and the provider X

Risk of conflicted remuneration

Lower efficiency given potential duplication

Requires very clear specification of roles, responsibilities and decision making. Platforms will need to consider both advice firm and manager capability.

ABC Avice Firm Clients

Platform Responsible Entity and Superannuation Trustee Appointment

Advice

ABC Advice Firm Subcontract

Asset Consultant /Managed Account manager

Investments (Managed Funds, ETFs,Securities)

OPTION 3 - DELEGATE Suitable for most financial advice firms seeking to develop a private label managed account program M aximises use of external expertise M aximises efficiency Lowest risk of best interests compliance findings Lowest operational risk X

Need to ensure appropriate arrangements are in place with responsible entity and model manager to enable manager replacement without moving clients

Risk of drifting towards an ‘off the shelf’solution

ABC Avice Firm Clients Advice

ABC Avice Firm

Platform Responsible Entity and Superannuation Trustee Engagement and Mandate

Appointment

Asset Consultant /Managed Account manager

Investments (Managed Funds, ETFs,Securities)

PROJECT MANAGEMENT

Advisers

Design

Asset Consultant

Design

Platform

Positioning

Client Reviews and Recommendations

Due Diligence

Portfolio Management, Monitoring and Implementation

Due Diligence

Execution and Responsible Entity

WHERE WE THINK IT SUITS Firms that are self-licensed or in control of their own investment program Firms that have a clear investment approach and articulate this philosophy Where clients expect the firm to build a portfolio rather than just invest in someone else’s Firms prepared to invest in governance and the development and onboarding time Where the advice team is aligned

WHERE WE THINK IT DOESN’T X Where an MDA approach is more suitable for UNHW clients X Where an industry fund, multi-manager or off the shelf SMA

(or combination) could suit X Where there isn’t a consistent philosophy or approach across the firm or

where there is a desire for advisers to build portfolios on a client by client basis X Where governance capacity is limited X Service only oriented firms

Oreana Portfolio Advisory Service Shane Hawke

Head of Research and Advisory Portfolio

Oreana

Are private labelled managed accounts right for you?

Momentum continues at a rapid pace in the adoption of managed accounts, the days of them being a niche service offered by only limited advisers is long gone. How private labelled managed accounts can bring together advice, investment management, technology and most importantly the client experience.

Important Information This presentation material and all the information contained herein is the property of Oreana Financial Services and is protected from unauthorised copying and dissemination by copyright laws with all rights reserved. This presentation material, original or copy, is reserved for use by authorised personnel within Oreana Financial Services only and is strictly prohibited from public use and/or circulation. Oreana Financial Services disclaims any responsibility from any consequences arising from the unauthorised use and/or circulation of this presentation material by any party. This presentation material is intended to provide general information on the background and services of Oreana Financial Services. No information within this presentation material constitutes a solicitation or an offer to purchase or sell any securities or investment advice of any kind. The analytical information within this presentation material is obtained from sources believed to be reliable. With respect to the information concerning investment referenced in this presentation material, certain assumptions may have been made by the sources quoted in compiling such information and changes in such assumptions may have a material impact on the information presented in this presentation material. In providing this presentation material, Oreana Financial Services makes no (i) express warranties concerning this presentation material; (ii) implied warranties concerning this presentation material (including, without limitation, warranties of merchantability, accuracy, or fitness for a particular purpose); (iii) express or implied warranty concerning the completeness or relevancy of this presentation material and the information contained herein. Past performance of the investment referenced in this presentation material is not necessarily indicative of future performance. Investment involves risks. Investors should refer to the Risk Disclosure Statements & Terms and Conditions of the relevant document for further details.

Natural Evolution of Portfolio Services Investment Governance and Investment Expertise

Higher

? Retail Managed Accounts • • • •

Governance support Portfolio Construction support Increased Execution efficiency Services Vary

Private Label Managed Accounts • • • • •

Governance support Portfolio Construction support Investment Communication Increased Execution efficiency Optional extra services

Model portfolios with Technology Off shelf Model portfolio • •

Portfolio Construction support Optional extra services

• • •

Portfolio Construction support Set up on Technology – more efficient RoA Optional extra services

Limited Licensee support

Lower

• • • •

Client directed

Multiple investments under advice (broad APL) Range of client level asset allocation is diverse Lag in implementation Lower engagement with clients

Discretion over Investments and Speed to execution

Investment manager 35

Private label managed accounts How to bring together advice, investment management, technology and most importantly the client experience

Advice process

• Increased platform functionality and administration

Technology

Private label managed accounts

Investment management

• Reduction in the need for ROAs • Reduction in effort chasing up client • Treats every client equitable

Customer engagement

• Investment transparency • Clear and consistent • Appropriate for entire client base

• Private Label Beliefs v Retail managed account models • Establishment of investment committee • Increased process and governance

Private label managed accounts How to bring together advice, investment management, technology and most importantly the client experience

Advice process

Technology

Private label managed accounts

Investment management

Customer engagement

A Strong Investment Management Program can = value creation

Investment governance expertise

Oreana Portfolio Advisory

Investment expertise

Drew, M.E., & Walk, A.N. (2019) Investment Governance for Fiduciaries. CFA Institute Research Foundation.

Jarvis, S., & Chua, D. (2018) Investment Governance: Creating a more performance focused organization. Blackrock.

Clark.G.L., & Urwin, R. (2008). Best practice pension fund governance. Journal of Asset Management 9, 2-21.

Private label managed accounts

Advice process

Technology

Private label managed accounts

Investment management

Customer engagement

Better Client Engagement requires end to end Efficiency 1. Clear Private Label Beliefs

Identify your core beliefs, document them, and ensure they are both clear by definition and by actions as well as being supported by evidence.

2. Consistent and Transparent

Is your communication consistent with your beliefs? In times of market volatility are you able to communicate clearly aligned to your beliefs?

3. Appropriate for entire client base?

Do you have a framework that covers your entire client base?

Are private labelled managed accounts right for you? Advice process

Time X

Expertise Customer engagement

Technology

Organisational Effectiveness =

Investment management

Good Governance Better Client Outcomes Efficiency and Effectiveness

Are private labelled managed accounts right for you? Investment Governance and Investment Expertise

Higher

? Retail Managed Accounts • • • •

Governance support Portfolio Construction support Increased Execution efficiency Services Vary

Private Label Managed Accounts • • • • •

Governance support Portfolio Construction support Investment Communication Increased Execution efficiency Optional extra services

Model portfolios with Technology Off shelf Model portfolio • •

Portfolio Construction support Optional extra services

• • •

Portfolio Construction support Set up on Technology – more efficient RoA Optional extra services

Limited Licensee support

Lower

• • • •

Client directed

Multiple investments under advice (broad APL) Range of client level asset allocation is diverse Lag in implementation Lower engagement with clients

Discretion over Investments and Speed to execution

Investment manager

Questions and answers

Thank you Trend Hunters Series – Coming up

• Thu 26th Aug at 1pm - Maximising passive lowcost investments into your portfolios • Fri 27th Aug at 1pm - Decreasing yields and looking beyond traditional income strategies • Mon 30th Aug at 1pm – Managing volatility in retirement – lessons learnt during the Covid crisis

Portfolio Construction Podcast

In this podcast series, our investment research team pick the brains of key wealth management professionals to uncover unique insights on the investment areas they are most passionate about.

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