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Forward Thinking Magazine : December 2010
12 Macquarie Adviser Services McCarthy’s advice is to “think about your client value proposition, and what you need to be focusing on to really deliver that. Look at your non- core activities and consider outsourcing these areas so you can focus your energies appropriately. For instance, for some businesses, the focus will be on building relationships with clients, for others the emphasis will be on investment management and the idea is to identify your value proposition and work toward creating a business that supports that, and outsource non-core functions to partners for which this is their core activity. No business, especially a small business, can do all things well. And the only way to deliver value profitably is to focus on your strengths and reduce your reliance on areas where you are not as strong.” For Martin McIntosh, founding partner of financial advice group Planning Partners, his value proposition is to “deliver astute, strong and sound, technically-savvy financial advice, tailored to clients’ unique needs.” McIntosh uses a wrap platform as his service delivery model to help streamline the process of integrating new clients into the practice and to ensure his practice operates efficiently. “The wrap offers a rigid and structured solution to ensure the complex process of adding new clients is properly executed every time,” he says, adding that, “having this structured process means staff operate within the guidelines of the wrap to ensure every client receives a similar experience, but it’s not so rigid that it can’t allow for the differences every client brings to the table.” The wrap environment also allows McIntosh to easily manage corporate actions that affect his clients’ portfolios. “The wrap team will advise us of any corporate actions and using COIN Software* we can email all our clients with a recommendation about how to respond - it’s really very efficient,” he says. But for some practices a wrap platform isn’t the only way to support their service offering. Paradigm Wealth Management is one business that uses an MDA. Managing director Patrick Nalty says it’s a solution that suits a certain type of firm. His clients are largely high-net-worth individuals and he says his focus is on offering “a relevant, tailored service. An MDA allows us to be very reactive – if we want to move 200 clients to cash we don’t have to issue an individual record of advice for each client and wait for their approval to transact.” Interestingly, Paradigm has appointed an investment committee comprising six fully qualified advisers who are responsible for making investment decisions for the practice. In addition, “we negotiate mandates with fund managers, which allows us to deal directly with them,” Nalty says. This suits the needs of the business’ high-net-worth client base. Nalty does acknowledge MDAs won’t suit every practice. He also says in order to move to an MDA environment “we had to spend around $300,000 implementing systems and getting our documents up to speed.” Another service delivery option is separately managed accounts. SMAs work well in conjunction with other service delivery models, especially in light of the current investment environment. They can help facilitate direct equity investments, which advisers are predicting will become increasingly popular with clients. According to Macquarie Practice Consulting’s Practice Management Survey 2010, 31 per cent of advisers expect direct equity investments to increase in popularity over the next three years. SMAs have a number of benefits, for example, transaction costs are usually low. But they also have their drawbacks. Given equities trades are executed at market prices or in the closing single price auction, execution prices can be poor, particularly when trading smaller entities. Investment managers also can’t consider investors’ individual tax positions when building or changing the model portfolio. Plus the structure may not suit some investment strategies or asset classes such as private equity or real estate. Nevertheless, SMAs can suit people who want a tax-effective, managed exposure to investment markets. They can also be used in a core and satellite investment strategy, and as a transition from an unmanaged direct share portfolio to a more professionally managed structure. They are good for investors who want a lot of transparency over their investment portfolio and for delivering a managed exposure to fixed income without the risks associated with open-ended, pooled investment structures. IMAs offer a higher level of customisation than SMAs. They give investors direct beneficial ownership of their portfolios and investment mandates can be customised to suit the investor’s unique investment goals, risk and return profile *COIN is a member of the Macquarie Group of companies.