The rise of managed accounts and why they are growing in popularity. by netwealth

Trend Hunter Series

The rise of managed accounts and why they are growing in popularity Advances in technology have helped to catapult managed accounts from an investment option just for the wealthy into a mainstream vehicle, helping even more investors to supercharge their investment strategies. We delve into the benefits of managed accounts for investors and how they can improve efficiencies for wealth businesses, with special guests Blackrock, Russell and Resonant AM.

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

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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

Sophie Antal-Gilbert

Glen Holder

Josh Persky

Head of Portfolio & Business Consulting – North America

CEO

Head of Model Portfolio Solutions - Australia

Russell Investments 6

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Resonant AM

BlackRock

Russell Investment Sophie Antal-Gilbert Head of Portfolio & Business Consulting – North America Russell Investments

The rise of managed accounts

SOPHIE ANTAL-GILBERT Head, Portfolio & Business Consulting, North America Tuesday, August 24, 2021

WHAT IS THE POTENTIAL CUMULATIVE VALUE OF THE VARIOUS SERVICES OFFERED BY A TYPICAL ADVISER?

A Appropriate asset allocation

Behavioural coaching

Cash optimisation

Expertise in additional wealth management services

T Taxeffective investing & planning

≈ 5.2%^ VALUE ^ Based

on Russell Investments’ methodology for adviser value, 2021 Value of an Adviser Report.

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Why managed accounts

Personalisation

Transparency

Match to investors’ objectives

Comprehensive reporting

Professionally managed Regain time, potential for reduced performance dispersion

Tax-efficient Less trading at a platform level

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An investment approach designed around the investor Step 1 Discovery

For illustrative purposes only.

Step 2 Translate to GCP

Step 3 Create the Plan

Continuous communication

Step 4 Map plan to solutions

Step 5 Manage & Refine

Delivering personalized wealth management expertise Over and above the asset management How am I planning for my children’s future?

Will I ultimately be responsible for anyone else financially?

Where can I go for emotional support?

Who would care for my family if something happened to me?

Other What are things in my life upcoming that I should plan for?

What am I most afraid of?

What causes are important to me?

Community and Giving

Who would care for me if something happened?

Health and Wellness

Family and Relationships

Wealth Wellness Wheel

Am I prepared?

Career and Work How am I working to reduce debt?

Lifestyle and Leisure

What would cause me to change my lifestyle?

Do I know what my lifestyle costs me?

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Time is your greatest resource Allocate it intentionally

Hours saved per week by leveraging professional management1

7.7 HOURS

7.7

8.4 HOURS

HOURS

385 Hours/Year 50 work weeks X 7.7 hrs.

5.8

48 Days

HOURS

50-89%

 Spend more time growing the business?  Spend more time with your family?

50-89% 20-49%

What would you do with the extra time?

 Spend more time with clients?

90-100%

Percentage of assets outsourced Assumptions:  Adviser outsources 50-89% of AUM  Adviser works 50 weeks per year

Source: https://static.twentyoverten.com/5e0f642709752828dbb0c6e0/-mjyNOiwG/Outsourcing-Money-Management-article4.pdf, AssetMark, 2019. Accessed on Feb 3, 2021 1

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Outsourcing vs building your own portfolio

Performance

What the research says and many regulators are honing in on

Adviser as Portfolio Manager

Fund Strategist Portfolios

‘Cerulli estimates that 22% of assets overseen by advisers would be better served by model portfolios created outside their practices’1 Source: Envestnet Analytics. Performance data from more than 31,000 accounts in the Moderate/Moderate Growth risk tier, spanning January 1, 2017, to December 31, 2019. Past performance is not a reliable indicator of future performance. 1 https://www.riaintel.com/article/b1glr3qsmq3b9d/model-portfolios-are-the-next-big-opportunity-for-asset-managers (Aug 6, 2019)

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Streamlining your product offering

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THE POTENTIAL CUMULATIVE VALUE OF THE VARIOUS SERVICES OFFERED BY A TYPICAL ADVISER

A Appropriate asset allocation

Behavioural coaching

Cash optimisation

Expertise in additional wealth management services

T Taxeffective investing & planning

≈ 5.2%^ VALUE ^ Based

on Russell Investments’ methodology for adviser value, 2021 Value of an Adviser Report.

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Important information and disclosures

Issued by Russell Investment Management Ltd ABN 53 068 338 974, AFS Licence 247185 (RIM). This document contains factual information only. The information provided is not intended to imply any recommendation or opinion about a financial product. RIM is not providing financial product advice in this document. The document has not been prepared having regard to any investor’s objectives, financial situation or needs. Before making an investment decision, an investor must obtain advice from a financial adviser and consider whether that advice is appropriate to their objectives, financial situation or needs. This information has been compiled from sources considered to be reliable but is not guaranteed. It is not intended to be a complete statement or summary. Past performance is not a reliable indicator of future performance. Any potential investor should also consider the latest financial product disclosure statement in respect of the Managed Portfolio (‘‘Disclosure Document’’) in deciding whether to make, or continue to hold, an investment in the Managed Portfolio. The Disclosure Document can be obtained by contacting a financial adviser or the relevant platform operator(s). RIM is part of Russell Investments. This work is copyright 2021. Apart from any use permitted under the Copyright Act 1968, no part may be reproduced by any process, nor may any other exclusive right be exercised, without the permission of Russell Investment Management Ltd.

FINANCIAL PROFESSIONAL USE ONLY

Resonant AM Glen Holder CEO Resonant AM

Direct Securities & ETF Focused SMA’s T H E A D VA N TA G E S O F M U LT I - A S S E T M A N A G E D A C C O U N T S T H AT I N C O R P O R AT E D I R E C T SECURITIES AND ETF’S

The future of investment advice Post Royal Commission environment:  Sharp focus on “Client’s Best Interests” – investment solutions must stack up versus competing products.  Increasing compliance burden and much greater regulatory oversight.  Increased cost transparency (e.g. RG97).  Advisers must demonstrate they are providing a service and adding value

The future of investment advice Challenges with existing investment models:  RoA’s are time consuming and costly. Sub-optimal way of managing portfolios.  Active “Fund of Fund” Managed Accounts provide efficiency, but are expensive (RG97).  Passive based offerings (purely ETF’s) are cheap, but no alpha opportunity. Also no differentiation = disruption risk from robo/direct-to-consumer offerings.  Challenges for advisers demonstrating their own ongoing value proposition.

Direct Securities & ETF Focused Approach Multi-Asset Portfolios that incorporate direct securities & ETF’s into their core investment process can help satisfy all these requirements:

 All the business efficiency advantages of Multi-Asset Managed Accounts – No RoA’s  Active management with scope for alpha generation  Much greater ability for the adviser to demonstrate value-add and foster greater client engagement:  Adviser can play key role in investment communication (trading/rebal decisions)  Adviser kept better informed with greater transparency  Improved tax planning (tax optimisation, in-specie transfers)

Direct Securities & ETF Focused Approach Active management at closer to a “passive” price Indicative Portfolio Costs 1.4%

1.2%

Active management at closer to passive “all in” price point.

1.0%

“Best of both worlds” approach. Active management at closer to Passive price.

0.8%

Compelling solution Best Interest Duties.

0.6%

0.4%

0.2%

0.0%

No discretion (portfolio of active funds)

Model Manager Fee

"Fund of Fund" Managed Account

Portfolio ICR's

Passive Managed Account (ETF's Only)

Execution

Direct Securities and ETF's focused approach

Estimated Business Cost of RoA's/SoA's

Portfolio Construction Incorporate direct stocks: Alpha opportunity with no third party ICR associated. However need to ensure manager has the markets/investment expertise.

Use ETF’s extensively: Employ a low-cost passive solution in asset classes where the alpha opportunity is small.

Use active managers sparingly: Only in areas where the SMA manager has neither in-house expertise or where no low-cost passive solutions exist.

“All-in” ICR’s extremely cost effective: All up, can create a multi-asset solution with direct stocks for an “all in” SMA model cost of around 0.5% - 0.8% (including manager fee, underlying ICR’s, RE and transaction fees).

Active Management – Scope for outperformance with right manager

Portfolio Construction Example of a multi-asset managed account incorporating direct securities with a “Balanced” risk profile, broken down by asset class and investment type:

Breakdown by Asset Class

Alternatives

Breakdown by Investment Type

Acitve Managed Funds

Cash Australian Fixed Interest

International Shares

Int Fixed Interest Listed Property ETF's Australian Shares

Direct Stocks

Investment Case Greater transparency/granularity can also improve performance

 A whole of Portfolio Approach – Greater visibility leads to improved risk management = more optimised risk/return ratio.  Manager is focused on overall portfolio, not just their sub-fund or asset class.  Improved after-tax returns – tax optimisation, in-specie transfers etc

Investment Case Greater scope for tailoring:  Granularity and SMA functionality provides for greater tailoring and value add without sacrificing efficiency benefits:  Specific ESG screening for clients  Tailored Mandates (higher yield etc)

BlackRock Josh Persky Head of Model Portfolio Solutions - Australia BlackRock

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Josh Persky Head of Model Portfolios, BlackRock Australia August 2021

BlackRock ETF Model Portfolios

FOR PROFESSIONAL CLIENTS / QUALIFIED INVESTORS ONLY.

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What is a Separately Managed Account?

“

A customised portfolio where the assets are owned by individual investors

“

Provide investors with exposure to a professionally managed portfolio of securities

”

Pros

Cons

• Professional oversight of investment management

• Investor unable to customise security selection in the portfolio (platform can adapt)

• Beneficial ownership of the securities lies with the investor, and the tax‐advantages affiliated therein • Provide investors with full transparency of security holdings

• If using multiple SMAs for multiple asset classes, rebalancing becomes tedious • Transparency

• Flexibility • No trading or RoA required at portfolio rebalance

• Access – must be through a wrap provider (no direct option)

• Portability • Consolidated reporting

FOR PROFESSIONAL CLIENTS / QUALIFIED INVESTORS ONLY.

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Technological advancement – ETF & Managed Accounts AUM and expected inflows

“

Managed Accounts are taking share from other platforms, with ~35% CAGR implying just ~7% market share in 2020 – but they could deliver ~75% of industry net flows

” Source: Morgan Stanley, June 2016. 2017 & 2018 figures are estimates as at 2016.

FOR PROFESSIONAL CLIENTS / QUALIFIED INVESTORS ONLY.

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Introducing BlackRock model portfolios

FOR PROFESSIONAL CLIENTS / QUALIFIED INVESTORS ONLY.

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Model Portfolio Allocations – 6th August 2021 Portfolio Constituents & Weights

Conservative

Moderate

Balanced

Growth

Aggressive

Composite Management Fee

0.20%

0.22%

0.24%

0.25%

Australian Fixed Income

50.5%

42.0%

30.0%

16.7%

5.0%

IAF

iShares Core Composite Bond ETF

46.4%

39.0%

28.5%

16.7%

5.0%

IGB

iShares Treasury ETF

4.1%

3.0%

1.5%

0.0%

International Fixed Income

15.5%

11.5%

8.0%

4.0%

1.5%

IHHY

iShares Global High Yield Bond (AUD Hedged) ETF

4.0%

3.5%

3.0%

2.0%

1.5%

IHCB

iShares Core Global Corporate Bond (AUD Hedged) ETF

11.5%

8.0%

5.0%

2.0%

‐

Australian Equity

1.7%

6.0%

14.0%

22.0%

27.0%

IOZ

1.7%

6.0%

14.0%

22.0%

27.0%

Developed Equity

15.4%

24.0%

34.5%

44.8%

52.5%

IVV

iShares S&P 500 ETF

6.1%

8.8%

12.6%

16.9%

20.3%

IHVV

iShares S&P 500 (AUD Hedged) ETF

‐

1.2%

1.9%

2.6%

3.2%

IVE

iShares MSCI EAFE ETF

2.5%

3.5%

‐

2.3%

4.0%

WVOL

iShares Edge MSCI World Minimum Volatility ETF

3.9%

6.0%

7.0%

8.0%

9.0%

IJP

iShares MSCI Japan ETF

‐

2.5%

3.5%

4.0%

IEU

iShares Europe ETC

2.9%

4.5%

10.5%

11.5%

12.0%

Emerging Equity

3.0%

5.5%

6.5%

8.0%

9.5%

IEM

iShares MSCI Emerging Markets ETF

1.5%

3.0%

4.0%

5.0%

6.0%

IZZ

iShares China Large‐Cap ETF

‐

1.0%

1.5%

2.0%

IKO

iShares MSCI South Korea ETF

1.5%

13.9%

11.0%

7.0%

4.5%

iShares Core S&P/ASX 200 ETF

Cash ISEC

iShares Enhanced Cash ETF

11.4%

8.5%

4.5%

1.5%

BAUBIL

AusBond Bank Bill Index

2.5%

3.0%

FOR PROFESSIONAL CLIENTS / QUALIFIED INVESTORS ONLY.

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Risk management framework & model performance

FOR PROFESSIONAL CLIENTS / QUALIFIED INVESTORS ONLY.

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Aladdin’s flexible reporting and analysis tools meet the needs of risk managers, portfolio managers, compliance officers, and executives Portfolio Positioning & Exposures

• • • •

Asset class breakdown, betas, durations, and spread exposures Portfolio vs. benchmark comparisons, active exposures Times series of positioning and risk metrics Report on both existing and what‐if portfolios

Portfolio Risk & Scenario Analysis

• • •

Size and rank the active risks in portfolios and across composites Correlated forward‐looking market projections Replay historical scenarios, pre‐canned and on‐the‐fly

Asset Allocation Analysis

• •

Optimize the portfolio for specific positioning or risk tolerances See effect of new trades or reallocation on all analytics, risk, and exposures

Easily mine data Interactive analyses

Analyze trades and reallocation

Performance & Attribution

Compliance & Oversight

• • •

Performance reporting at top, sector, and security levels Return attribution to understand how active risks paid off Run attribution in the same framework as investment decisions are made

• •

Track post‐trade compliance for each of the underlying funds Overlay top level compliance to ensure allocation across funds fits within risk expectations

User‐configurable reports

Data as of 11/30/18. For illustrative purposes only.

FOR PROFESSIONAL CLIENTS / QUALIFIED INVESTORS ONLY.

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Enhanced Strategic Models – Performance at 30 June 2021 Year‐to‐Date Conservative

Since Inception ‐ Annualised Conservative

1.32%

Moderate

3.66%

Balanced

Aggressive

11.72% 4.00%

6.00%

8.00%

6.33%

Growth

9.49%

2.00%

5.07%

Balanced

6.54%

Growth

0.00%

4.06%

10.00%

7.65%

Aggressive

12.00%

0.00%

8.63% 2.00%

4.00%

6.00%

8.00%

10.00%

Trailing Five Years ‐ Annualised 12.00% 10.75% 9.44%

8.00% 7.64%

4.00%

11.01%

8.84%

6.98%

5.87% 4.97%

4.49% 3.57%

0.00% Conservative

Moderate

Balanced

Portfolio

Growth

Aggressive

Peer Group 2nd Quartile

Source: BlackRock, MorningStar as at 30 June 2021. Performance of model portfolios are net of iShares ETF fees (approx. 20‐25bps per model p.a.), but gross of the platform fees. Model portfolios have an inception date of 30 January 2015. Since inception returns are annualized. Past performance is not a reliable indicator of future performance. This is not a securities recommendation to invest in any particular financial product. No analysis of their suitability was conducted and no statement of opinion in relation to their suitability is provided. FOR PROFESSIONAL CLIENTS / QUALIFIED INVESTORS ONLY.

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Managed Accounts Insights

FOR PROFESSIONAL CLIENTS / QUALIFIED INVESTORS ONLY.

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Insights learned as a global, 3rd party managed account model portfolio provider

What are advisors & investors looking for in a model portfolio? Simple Solution

• •

Intuitive, transparent portfolios No surprises – portfolios anchored closely around a stated risk profile

Steering Wheel

• • •

Market aware Ability to respond to evolving market regime quickly Dynamic allocation, rebalancing & clear, tactical market views

Save client’s money

• •

“Active for the price of passive” Low-cost underlying exposures within the model

Superior investment performance

• •

Not all great portfolio managers a re necessarily great model managers. Need for strong pedigree in asset allocation, portfolio construction, ETF & fund due diligence expertise.

“Surround Sound”

• • •

Advisor training Quarterly & Monthly commentary, webinars – includes trade rationale, market views & risk analytics Technology to streamline & support client conversations (social media, blogs, newsletters, video conferences, webex).

FOR WHOLESALE CLIENTS ONLY – NOT FOR DISTRIBUTION TO RETAIL CLIENTS

FOR PROFESSIONAL CLIENTS / QUALIFIED INVESTORS ONLY.

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Supporting advisers & investors

FOR PROFESSIONAL CLIENTS / QUALIFIED INVESTORS ONLY.

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Engaging conversations with client‐friendly resources Client Brochures

Client Videos

Educate your clients about the model portfolios, your role as an advisor and partnership with BlackRock

FOR PROFESSIONAL CLIENTS / QUALIFIED INVESTORS ONLY.

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Important Information Issued by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975, AFSL 230 523 (BIMAL) Optional text ‐ for the exclusive use of the recipient, who warrants by receipt of this material that they are a wholesale client as defined under the Australian Corporations Act 2001 (Cth). This material provides general information only and does not take into account your individual objectives, financial situation, needs or circumstances. Before making any investment decision, you should assess whether the material is appropriate for you and obtain financial advice tailored to you having regard to your individual objectives, financial situation, needs and circumstances. This material is not a financial product recommendation or an offer or solicitation with respect to the purchase or sale of any financial product in any jurisdiction. This material is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. BIMAL is a part of the global BlackRock Group which comprises of financial product issuers and investment managers around the world. BIMAL is the issuer of financial products and acts as an investment manager in Australia. BIMAL, its officers, employees and agents believe that the information in this material and the sources on which it is based (which may be sourced from third parties) are correct as at the date of publication. While every care has been taken in the preparation of this material, no warranty of accuracy or reliability is given and no responsibility for the information is accepted by BIMAL, its officers, employees or agents. Except where contrary to law, BIMAL excludes all liability for this information. Any investment is subject to investment risk, including delays on the payment of withdrawal proceeds and the loss of income or the principal invested. While any forecasts, estimates and opinions in this material are made on a reasonable basis, actual future results and operations may differ materially from the forecasts, estimates and opinions set out in this material. No guarantee as to the repayment of capital or the performance of any product or rate of return referred to in this material is made by BIMAL or any entity in the BlackRock group of companies. No part of this material may be reproduced or distributed in any manner without the prior written permission of BIMAL. © 2021 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, iSHARES and the stylised i logo are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.

FOR PROFESSIONAL CLIENTS / QUALIFIED INVESTORS ONLY.

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