Beyond SMAs: The next evolution

By Jayson Forrest

Mike Wright (Evidentia/Lonsec), Alex Donald (Ironbark), and Kieran Canavan (Centric) explore the evolving structure of managed accounts as more investors turn to this structure to access illiquid investments and wholesale opportunities.

The acquisition earlier this year of Evidentia by Generation Development Group (GDG) — the owner of Lonsec — and its subsequent merger with Lonsec Investment Solutions under the name of Evidentia Group, has effectively made this organisation one of the largest providers of outsourced investment advice to financial advisers in Australia.

Alex Donald — Chief Executive Officer, Investment Solutions at Ironbark — believes acquisitions like Evidentia (a provider of tailored managed accounts and investment management), signify a wider trend occurring in the outsourced chief investment officer (OCIO) space. The OCIO model enables an organisation to delegate some or all of its investment management functions to a third-party investment firm or consultant.

“There are a number of OCIO businesses being bought overseas. Last year, U.S. wealth manager, Hightower, acquired a majority stake in Boston-based OCIO business, NEPC,” says Alex. “So, as a wealth management firm, if you’re a private equity or a strategic buyer, I think OCIO businesses show great growth and have valuations that are appropriate.”  

Joining Alex on a panel discussion on ‘Beyond SMAs: The next evolution’ at the 2025 IMAP Portfolio Management Conference in Sydney, Kieran Canavan — Chief Investment Officer at Centric (a platform operator and fund manager that is part of the Findex Group — an integrated advice and accounting business) — says Centric already has an OCIO model as a component of Findex.

Kieran believes that by partnering with a seasoned OCIO, it brings many benefits to a business, including: enhanced performance potential, comprehensive portfolio management, a robust governance process, and back-office support.

Alex agrees, adding that an OCIO can provide everything that asset consultants are able to do, such as asset allocation, manager selection, and managing portfolios.

“I believe the next stage of managed accounts will be about buying power,” he says. “When we start to think about private markets, you begin to think about manager pricing. And when you think about the type of institutional investing that is about to start happening in managed accounts, then the buying power that’s available through the OCIO model is going to be essential, which will ultimately benefit clients.”

Centric’s client base includes high-end family offices, foundations, and not-for-profits. According to Kieran, these high-net-wealth clients are typically already familiar with the OCIO model, and use it for various capabilities, such as portfolio construction.

“The OCIO model has traditionally been accessed through managed accounts, but what we’re now seeing with this model is the ability to use it for the personalisation and customisation of portfolios,” says Kieran. “By taking this model and using the next generation of technology, advisers and advice practices will be able to personalise portfolios, which will provide a clear differentiator with clients and their value proposition. The OCIO model is changing in its ability to support advisers in a better way, and not just as a simple SMA-type function.”

As part of the evolutionary journey of managed accounts, illiquid investments and ETFs are often seen as being two of the most important drivers in the development of this structure. According to IMAP, the rise of ETFs as a component of managed accounts continues unabated, with managed accounts currently accounting for about 19 per cent of the ETF market.

Alex agrees that less liquid private market assets will feature in the evolution of managed accounts. He believes it’s a misnomer for advisers to think that putting private markets into a traditional SMA is difficult to do. He says this can be achieved by running private market assets in a separate scheme to a client’s daily liquid strategies.

“The private markets component needs to be in a separate scheme with its own liquidity profile,” says Alex. “We’re about to launch a monthly liquid private market strategy on three separate platforms under superannuation, which can sit alongside the liquid portfolios of investors. We’re also working with our advice groups about what type of client will come into that product, which means there will be no unadvised clients accessing the product.”

From a Centric perspective, Kieran says it’s “fantastic” to get private market assets into SMAs and MDAs, because “private markets are an important building block of any portfolio, particularly considering the reduced volatility and liquidity premium investors can get from investing in private markets”.

However, where Centric identifies risk is with assets that sit within a listed liquid structure, but are  trading at large discounts to net asset value (NAV). Kieran says this can be problematic, particularly if you have to rebalance to get liquidity, or if the assets trade at a premium to NAV. “If you’re a forced seller or buyer at the wrong time, it can be extremely expensive for you.”

However, when it comes to liquidity, Mike Wright — Chief Executive Officer of the Evidentia Group and Lonsec — admits to taking a more cautious approach within the Evidentia Group, particularly in relation to capital lock-up for the wrong type of advised client. The approach Evidentia has taken is multifaceted. It has a unitised structure within the Evidentia Group, with Ironbark as the responsible entity (RE) and a sub-manager — Wilshire — that provides the business with access to global private markets (equity, real estate, and credit).

“While technically not a managed account, we’re very comfortable with this approach, particularly for mass affluent retail clients,” says Mike.

But at the other end of the spectrum, the business has also developed a managed accounts offering that provides access to private market assets. The offering, which will soon be launched, is in partnership with Netwealth and iCapital — a U.S. fintech company that provides platform solutions related to alternative investments in the private markets space.

“This is a wholesale offering, requiring a minimum of $500,000 to access. It’s an MDA that will allow individualisation as you go forward. The model will be made up of wholesale Australian trusts across all private markets, including commodities, as well as foreign exchange.”

Mike says the real differentiator is the partnership with iCapital. Once an individual gets to $2.5 million, they will be able to access opportunistic deal flow from iCapital. He adds: “iCapital’s mission is very simple; to bring alternative wholesale structures to high-net-wealth individuals, and in a way that is seamless, simple and easy.”

In addition, Mike says iCapital currently has 40 offerings that can be accessed for high-net-wealth clients. As most of these offerings (both on and off custody) are offshore structures, they will be fed through the Netwealth platform.

When looking at SMAs and MDAs, they are very different structures, with the SMA being a product and the MDA an investment service. However, the verticals that run through both structures are similar: ‘off-the-shelf’ and readymade managed accounts, tailored or private licensee managed accounts, and custom managed accounts — at either a practice or individual level.

“At Evidentia Group, it’s all about how we support advice firms to get the right solution for them, and bring back the practice management component when it comes to investments. This means we’re agnostic to the offer that an advice firm will take,” says Mike.

“If we look at the Evidentia offering as it currently stands, it’s a powerhouse when it comes to tailored SMAs for licensees, while Lonsec will continue to work across those categories where it’s currently the market leader. Our offering is not only complementary, but we’re putting advice firms back in charge of investment decisions for their clients.”

For a long time, Centric has run one of the largest MDA programs in Australia. Catering for a diverse client base — ranging from mum and dad investors, through to ultra high-net-worth clients and family offices — when it comes to considering the most appropriate way to implement investments, Kieran says it always comes down to either a managed account or an MDA.

However, he adds that scale is a definite differentiator between both types of structures. For example, scale enables an MDA to tailor portfolios, but without scale, this structure can be expensive to run. That’s because there is additional compliance attached to the MDA structure that needs to be dealt with. Therefore, an SMA structure is more appropriate for clients with simpler needs, who don’t require their portfolio tailored.

Referring to IMAP data that shows that the SMA sector has grown by $19 billion in the six months to December 2024 to $148 billion, in contrast, Alex says MDAs have been slower to grow — about $5.9 billion over the same period — accounting for just $58.3 billion of the total $232.8 billion managed accounts sector.

“The adoption of SMAs can be seen as a reflection of a product that requires the least tailoring. I don’t see that adoption trend stopping anytime soon,” says Alex. “So, any growth in MDAs will come from those sectors of the market that specifically require tailoring, or need access to assets that are less liquid, or simply can’t fit in a traditional SMA structure.”

Alex is confident that SMAs will continue to evolve and innovate, which will include tailoring and the ability to accomodate private market investments. And while such a development could curtail the growth of MDAs, he says there is definitely room for both structures.

Mike agrees, adding that the MDA structure is also slightly nuanced in its ability to allow managed account providers to offer readymade portfolios in the MDA. He says the reason advisers and advice groups use these readymade MDAs is about the execution of the portfolio and tax optimisation for clients.

“So, I genuinely feel there will be a renaissance around the corner for MDAs. I think it will be driven around tax optimisation, private markets, and the personalisation of individual portfolios,” says Mike.

To date, there hasn’t been any major breaches of fiduciary or regulatory duty in the managed accounts space, compared to other registered fund structures. Mike believes this is largely because the managed accounts structure is inherently more conservative, and perhaps a better constructed and more transparent model.

For example, looking at the MDA structure, Mike believes there are three key features that has protected it from any significant breaches, making this a very attractive offering for investors. They are:

1. 13-month review

Reviews of MDAs are obligatory under regulation and must be conducted every 13 months. The MDA provider must develop an investment program in consultation with the investor and include it in a Statement of Advice (SOA) that is reviewed at least every 13 months. The MDA needs to be fit-for-purpose for the client and appropriate for their needs.

2. Governance and compliance oversight

The majority of MDA offerings are on regulated platforms. These platforms have their own checks and balances, particularly around product and investment menus, ensuring another layer of governance. 

3. Client/adviser engagement

The managed accounts structure encourages open, transparent and regular conversations between client and adviser. Clients using this structure tend to have greater awareness of investing, enjoy closer engagement with their adviser, and take investing seriously.

Kieran agrees that the number of governance and compliance layers are significant safeguards protecting the structure of SMAs and MDAs.

“If you’re running these structures on a platform, there’s also additional governance layers from the RE on the investor directed portfolio service (IDPS) side, and from the super trustee on the superannuation side. They also have obligations to make sure: they understand what is going on with the structure; that it’s reasonable; and services are being provided,” says Kieran.

“So, with all these additional layers, it’s not surprising we haven’t seen any major breaches of fiduciary or regulatory duty with the managed accounts structure.”    

Alex Donald is Chief Executive Officer, Investment Solutions at Ironbark;

Kieran Canavan is Chief Investment Officer at Centric; and

Mike Wright is Chief Executive Officer at Evidentia Group and Lonsec.

They were part of a panel discussion on ‘Beyond SMAs — The next evolution’ at the 2025 IMAP Portfolio Management Conference in Sydney.

The session was moderated by Toby Potter — Chair of IMAP.