Praemium Advice Leaders

Unlocking Growth with Separately Managed Accounts

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Unlock the secrets to transforming your financial advisory business as Sam Carroll, Managing Director of Talem Wealth, shares the firm's incredible journey as an early adopter of cutting-edge Separately Managed Accounts (SMAs). 

Learn the true advantages of SMAs in building trust and efficiency with clients. Hear Sam discuss how clear communication and transparency can enhance client trust and confidence. Understand the significant reduction in workload for financial advisers and the instantaneous changes that SMAs can offer. We also delve into the importance of involving the next generation in financial planning, discussing estate planning and ensuring service continuity across generations — crucial for managing an aging client base and facilitating intergenerational wealth transfer.

Explore the evolving landscape of managed accounts and their appeal to different generations and wealth levels. Sam dispels the myth that managed accounts are too generic, highlighting their customisation capabilities and technological benefits such as trading, reconciliation, tax management, and instant reporting. As we look ahead to future trends, Sam offers practical advice for advisers eager to transition to SMAs, emphasising the importance of fully committing to streamline processes to achieve superior business outcomes. Tune in to gain invaluable insights and stay ahead in the world of financial advice.

Paul Roach :

Hello and welcome to another episode of Premium's Advice Leaders podcast. I'm Paul Roach, here to look at the many and varied reasons for investing in separately managed accounts, or SMAs, both in the past, present and, indeed, the future. And who better to have join me in this conversation than Sam Carroll, managing Director of Taln Wealth and one of the founding partners of boutique licensee Walker Lane? Sam, thanks for joining us.

Sam Carroll:

Thanks Paul aul. Good to be.

Paul Roach :

Now. Sam, you've certainly had an interesting career trajectory, being one of the early adopters of SMAs and successfully growing a financial advice business that is firmly oriented towards SMAs, so keen to explore the path you've taken and why you're in the position you are today and, in particular, what role the use of SMAs has played in that. So let's start with the story of Talen Wealth itself, because second-generation a custodian at that business, aren't you? How did the business start and how did you come to be involved?

Sam Carroll:

Sure, so the business was started by my father, Paul 1996.

Sam Carroll:

So coming up 30 years a long time and, at the time, zero hope of me ever going into the business. I couldn't think of anything. I'd rather do less. But, as fate would have it, during my uni years and working there part-time, realised that it was probably a bit more interesting and a bit more rewarding than what I thought from the outside. So just sort of naturally happened. And now that's 20, 21 years ago, so it's kind of flown by really. So my dad started the business from scratch, focusing a fair bit on cashflow management and debt recycling strategies to employed people, predominantly PAYG employees, and, yeah, pretty heavy use of managed funds at the time. And then, probably in 2011, tarted the transition to managed accounts and went full ball into it really Wel.

Paul Roach :

I mean that's interesting because managed funds are obviously the mainstay of many of investment philosophies and portfolio management some time ago and still are today, but obviously we've seen the rise of SMAs over time, so let's explore that a bit further. Can you tell us a bit about the evolution of the business from managed funds-based to separately managed accounts? Was there a pivotal moment when you recognised the benefits or was it sort of a gradual realisation? What led to the buying?

Sam Carroll:

Probably a bit of both really. So, as I said, we did a lot of debt recycling strategies. So our clients invested in a model portfolio of predominantly Australian equity managers and over time we realised that if you looked at, say, the five to 10-year track record of those accounts, in a lot of instances the account value was almost the same as the starting point, but the same value again had been paid out via distributions. Ultimately, the clients would either pay a fair amount of capital gains along the way and, in some instances, often not use those distributions for what was intended paying down debt and instead ended up spending them a lot. So whilst they had a good return over the long term on the investment, the actual mix of income versus growth wasn't really where we wanted it to be, and s our technical manager at the time, desmar, who's still involved in the managed accounts that we run today, basically did the research and did the work and came to the group with the idea of using managed accounts.

Sam Carroll:

I think it was on BlackRock at the time initially and then our business has always been a business that when we've adopted something, we've sort of adopted it in earnest righ.

Sam Carroll:

So I think at the time we probably had 120-ish client groups that were in that Australian Equities Managed Fund model, and so over the space of 12 months, basically a review cycle we pretty much methodically went through and explained the reasoning for why we're wanting to change over to managed accounts the benefits and went through that process.

Sam Carroll:

So, we had the benefits explained to us and said, yep, that makes sense and it's in the client's best interest, let's do it. But then it wasn't until we actually did it that we then really truly saw the benefits of managed accounts ultimately in terms of. We then really truly saw the benefits of managed accounts ultimately in terms of A first and foremost, fixing that issue about the growth versus income profile and then also the efficiencies of, you know, everyone being in the correct model instantly at the same time, rather than having to work methodically through the client base to implement a change and you know, obviously a lag time in getting that done and then also just the associated workload that comes with that in terms of advice documents to enact those changes as well, so yeah, we're all for managed accounts.

Paul Roach :

Now, all in, yeah, sure, and so tell me about the implementation, because it's one thing to come to that conceptual realisation, that's what you've got to do, but often advice businesses struggle to implement really, because we can always nod and go that's a great idea, but how do you actually implement it? So can you tell us a little bit about that experience? How strategic were you about it? You know, was it good luck, was it good management? Was it a little bit of both?

Sam Carroll:

Yeah, so, and I totally agree with your point, we interact with a lot of advisrs and I think there's like there's a distinct categor like there's the implementers and there's the the head nodders kind of thing.

Sam Carroll:

So, as I said, we saw the benefits, we came up wit, a script, effectively, or a positioning of how to explain to the client, N committed we just that for every client review that we had would have this conversation, because we were doing it in in en masse, effectively, it became more and more natural and easier to explain. Obviously, we were able to use the same template then in terms of the advice document, because it was being rolled out across the board, and I feel like, by l fully committing to the project and getting into it, tha than taking a few light steps here and there, it actually made it easier because it's something that you're doing, you know it's a conversation you're having every day and it's part of the business process for that 12 months. A and before you know it, it's basically done and behind you ultimately.

Paul Roach :

You've touched on it briefly, but let's talk a little bit more about the client experience, as it were, and more particularly, whether or not there was a need for them to adapt. Was there much resistance?

Sam Carroll:

Yea there definitely wasn't any resistance because I guess you know long-term client relationships and they trust our advice and follow our advice. There was certainly an element of explanation required as to what it was and how it differed, but also how it didn't differ in terms of you know the unknown ut explaining to them that you're technically investing in the same underlying investments but just in a different structure ultimately. So there was that piece. Most people got that, yeah, yeah. I think we had a fairly simple way of explaining it to them that they at least understood the concept until they were in there and actually saw it. Then they realised exactly what it was.

Sam Carroll:

But probably the biggest adjustment for the clients that they neede was that they were, twice a year, getting these very large distribution checks For some of our clients it could be as much as li $100,000 in one hit to now just getting either a small interest payment on the off months and a couple of dribbles of dividends and then obviously the bigger dividends at the time of year when most of the companies are declaring.

Sam Carroll:

So that's probably the biggest change for them. But again, once explaining the process, they understood it potentially less of an issue for a more diversified managed fund portfolio. That wasn't just Australian equities, but that was definitely our experience. And then probably the only other major difference was it probably triggered a few more questions than normal. Once the clients could see the underlying shares that they were holding and not just the four or five managed funds, it'd be, oh you know, why are we holding this or why are you buying this or like so just. But I think it actually benefited the client relationship because they became more engaged by their portfolio, as opposed to just seeing four fund manager names on a statement kind of thing.

Paul Roach :

So there was scope for more questions to be asked by them, but there was also the transparency. I suppose that they could see all that was being held.

Sam Carroll:

Yea.

Paul Roach :

What role did the licensee play in this? Because, as I mentioned at the top, you're the founding partner of Walker Lane, a boutique licensee that has a significant orientation towards SMAs. It's not just your own business. You have an arm of the business called Agentia, which is an investment arm that specialises in SMAs. So what role did the licensee play here? And I suppose also, was there concurrently other businesses within the licensee who were embracing SMAs, slash managed accounts, like you were, eah, so well.

Sam Carroll:

I guess it's probably a two-part situation, in that we did our transition under a different licensee ultimately.

Sam Carroll:

But I think the license but more generally speaking, the licensee, I think plays a huge part because at the end of the day, if it's first and foremost, if it's not on your APL, that's already a hurdle to overcome.

Sam Carroll:

But also, I think, in terms of our ongoing use of managed accounts and also for the firms that we've added into Walker Lane that have adopted managed accounts, I think the licensee plays a huge role.

Sam Carroll:

So we have one particular firm that had a slightly different investment philosophy to what we have currently and we were able to take what we've built on our managed account infrastructure and tweak it slightly and then roll something out to their client base specific, without necessarily needing to have three, four, 500 million of fund that you'd often need to stand up a solution by yourself.

Sam Carroll:

And then I guess the other support piece comes around the training and the explanation of it, the way that we run the investment committee and give the advisors access into the investment decision makers and also the information behind the actual investment decisions that we can roll out to our clients in a relatively structured and efficient way without having to basically reinvent the wheel from the beginning, like our investment committee puts out market communications and client communications around the changes, and I think it just makes the advisor's job infinitely more easy if you don't have to then also scour 15 different investment opinions and pull it together yourself. If you can have a house view that aligns with your actual investment decisions that you're making, that you can roll out to the clients in a much more efficient manner.

Paul Roach :

So, as a licensee, it's almost one of your value propositions for a better term. This is how you do things, and if you're joining Walker Lane, this is how we operate.

Sam Carroll:

Yeah. So Walker Lane has always founded by advisrs and built by advisors and run by advisors, and we've always had the ethos that we want group think and we want everyone to relatively do things in a similar fashion but best of breed and best processes. And so anyone that we talk about joining the licence obviously it's far from mandated but they need to come open to better ways of doing things. Ultimately and generally, the managed account piece is one of those first leading parts. And then, you know, in talking to the other advisors at our various peer group days or interactions, they pretty quickly hear the experience of those advisors and anyone that was potentially on the fence is pretty quickly converted to the benefit and profile of it. And then so most of our advice practices are either fully transitioned into managed accounts now as well or down the path of starting that process themselves.

Paul Roach :

Back to Talen Wealth specifically again. So tell us a little bit about your client base and how that's grown over the time that you've been at the helm of the business and then, obviously sort of following on from that, how SMAs have played a role in the development of that client base. Yep, sure.

Sam Carroll:

So I guess our typical client base over the years has probably aged, as a lot of financial planning businesses have. But back when my dad started it would have started with that sort of 45 to 55, like 10 to 15 years out from retirement, which is still generally when we tend to engage clients. But as our business grows and those people age, I would say we now have a fair majority of people in that sort of 60 to 75 kind of age bracket. Eve Most of our clients are PAYG-employed are client, and definitely some business owners as well. But I would say from a financial sophistication perspective none of them are like super detailed or like they want us to explain complex things to them simply and then they take our advice because they are confident in what we do and they trust us ultimately.

Sam Carroll:

So, again, with the managed account piece being able to show them what they're actually invested in itself and being able to give them the story behind each individual holding, even if they're of that level of inclination of detail or just being able to have an updated story as to why it is and what it looks like, it just adds to that trust piece and that confidence piece for them to follow us ultimately. So I guess the stuff that they don't see is the fact that you know when we make an investment, change or decision, it happens instantly on everyone and, conversely, on the flip side, they probably didn't know that in the previous world, when it took us three to six months to get to that person in particular, they wouldn't know that it's necessarily that timeframe. So I guess a lot of the benefits are probably much more visible to us than the client ultimately.

Paul Roach :

So that visibility I mean you're talking specifically there around visibility over the benefit to the client, but there's also obviously the efficiency that comes with SMAs in terms of the business practice, how it runs and so forth Can you tell us a bit about that, your experience, and was that something you noticed in a very big way when that transition was made? Yeah, definitely. Was it a sudden noticing, oh wow, we should have done this five years ago.

Sam Carroll:

Yeah, pretty much, although I don't think managed accounts existed five years from when we adopted them, but from when we adopted them. But yeah, so I guess, first and foremost, just the straight work in progress in terms of advice documents. So very rarely do we need to do switch ROAs anymore because of the way that the account, the structure works and they're basically set to risk profiles and so they stay within the bounds of those risk profiles. Ultimately, there's no issue with one manager drifting overweight position. If they're outperforming the rest of it, it's all done. Live for you. Ultimately. So, yeah, really it's just the sheer quantum, or rather the sheer reduction in quantum, of ROAs and other advice documents that we needed to do to make a change, and then the fact that the change happens instantly.

Paul Roach :

So you mentioned a little while, a little moment ago there about your ageing client base and it's a bit of a, it's almost a throwaway line within the advice industry because I suppose, well, naturally, everyone's client base is ageing, but there's this recognition of this intergenerational transfer of wealth. It's a term that's kicked around a lot within financial services and financial advice. So I'm interested, broadly speaking, what you're doing around the acknowledgement that your client base is getting older, and also then, inevitably, do SMAs have a role to play in what you're doing around there?

Sam Carroll:

Yeah, yea I definitely have a role to play as far as what we're doing. As much as we can, we try and involve the next generation in the process. Obviously, every meeting with an older client has a conversation around it at least and checking on things like estate planning and future education of other generations. We actually have a lot of clients whose children are clients of ours already. I even have a couple. I think we might be at three generations worth of clients possibly. So that's obviously the safest way to steward or shepherd that process in.

Sam Carroll:

But I guess, in terms of the managed account piece, the one thing that I would say is that we notice in the younger generations is that they have much more interest in the not necessarily the technical aspects of investing, but the detail of investing. I think they're more read in these regards and potentially somewhat more educated. It's just more topical of conversations kind of thing. So again, the managed account allows you to have those conversations in a more in-depth manner and show them more of the detail again, as opposed to just showing five or six or ten line items of managed funds on a portfolio report.

Paul Roach :

I mean there's been various studies of how many beneficiaries of an estate will stay with the same advisor.

Paul Roach :

It's only about sort of 10-ish percent, depending on who you talk to and what you read, and I think the number is sort of 25% or maybe a third of beneficiaries think they can do it all by themselves. There's also quite a fair bit of potential there for an advisor. Yeah, definitely, and at the other end of the scale. So the older client base, well, more particularly the wealthier end of the spectrum, your client base, because I think and I'm interested in your thoughts on this but I think there's an apprehension in the market that SMAs are a bit sort of generic Whilst there's a lot of different risk profiles and lots of different options there, they still survey a particular function for a particular type of client and maybe they aren't seen so much as being suitable for the high net worth end of the client base by some. How do you dispel that myth, if indeed I can tell by your facial expression?

Speaker 3:

you think that's a bit of a myth?

Sam Carroll:

Yeah, well, we use the managed account solution for our high net worth clients and, in fact, we've actually created entire models specifically for clients with significant amounts of money. I think that I can see where that belief would come from, necessarily, but the reality is that the managed account, you know, within reason, but you can customise it as much as you want. Ultimately, you can substitute things in and out. You can add ethical screens on the premium platform, you could build something new, you could account for tilts, Like. So I think I still think it's a very efficient way to run money, even at those bigger accounts, like. I think our biggest managed account would probably sit at like 35 million dollars and and it makes it very easy client gets everything they need in terms of the visibility, the information, the return, really the return profile, which is what most, most people um, most clients. That's what it's all about us on um. And then we still get the efficiencies of institutional grade investing, investing capability and near instant trading whenever we want to make a decision or a change.

Paul Roach :

So, yeah, so I mean you make an interesting point there about that. Smas aren't just generic, they're not just here's what it is and off you go, kind of thing. You can actually make tilts and adjustments and so on and so forth. And you know you mentioned some technology pieces there. So tell us a bit more about how technology plays a role in being able to manage a client base with SMAs effectively.

Sam Carroll:

And this is not just an attempt to get you to plug premium, by the way, Sam, Funnily enough, actually, the first thing that comes to mind is some of the functionality. However, yeah, yeah, well, I think you know it's crucial, right, Like without the right technology. In fact, I think technology is even more necessary in a managed account environment than it is in a managed fund environment, because there's a lot more, I guess, of the underlying stuff that you can see or slash, be involved in, right. So the trading, the reconciliation, the tax management a big part on Pramie's part is like the netting of the trades across. All of it keeps the costs down very low, the time in and out of the market and just the ability to report on, you know, the various things that a client might want to know with little or minimal notice overall. So I think the platform definitely plays a big role in that?

Paul Roach :

What about on the investment side? Is technology an important part in the investments piece as well? Yes, so you have a bit of a.

Sam Carroll:

I would have less because our investment committee does all the transactions and trades. But in hearing them talk about it and especially the work that DES does in being able to monitor the portfolios and check that everything is all, the mandates are met and everything, then yeah, absolutely, the technology is crucial to that as well.

Paul Roach :

So a couple of bigger picture questions here as we sort of start to come to the conclusion of our conversation. You've been involved in SMA slash managed accounts for a substantial period of time relative to most of the industry. What changes have you seen? You know, broadly speaking, whether it be what's on offer, how you implement them. You know what the clients think of them. What changes have you seen across that time?

Sam Carroll:

Yeah, so probably the biggest one is what's on offer. When we first ran started running managed accounts, there wouldn't have been much more, I think, than like a dozen Aussie equity managers that actually ran SMAs. Now there's, you know, almost all asset classes represented. I guess a big one is direct international equities, again for that high net worth piece, wealth piece that's of interest to them in particular, and obviously the size of money makes it more viable as well. I guess just the adoption of managed accounts Again, when we started back in 2010-11, you'd use the word managed account and you know not well probably not even the majority of people would know what you were talking about, whereas it's much more, I guess, of an accepted product and arrangement. The adoption is much higher and I think also, by that same regard, then advisors' willingness to make a transition to it is a lot higher now that there's a lot more A track record B, a lot of other people using it and I guess, yeah, just their bigger confidence in the fact that it's a viable option for them.

Paul Roach :

I know you've got your own sort of effectively in-house go-to offering. But thinking more broadly about the advice industry generally, there is a lot of options. There's a hell of a lot of options. How's an advisor supposed to pass through all those options?

Sam Carroll:

Well, just use ours, obviously. Yeah, I set that up nicely for you didn't I?

Paul Roach :

Shall I move on to the next question.

Sam Carroll:

Yeah, it is a good question because there is a lot out there right, and we find probably one of the still the areas for improved take-up is around the research piece of managed accounts, compared to, say, like the typical managed fund information you can get. So, yeah, I guess you need to rely on a number of sources research houses, your licensee, your investment committee, either internal or external, the platforms. You're just going to have to pull as much together as you can to make as informed a decision as possible about where is the right place for you and your business to put your money ultimately, which is obviously a very big call.

Paul Roach :

So what's the future hold? I asked you about what trends you'd seen in the past. Where do you see the use of managed accounts going? Anything radical, going to change Is the trajectory going to continue.

Sam Carroll:

I definitely think the trajectory is going to continue. Like, if you look at the stats of, say, the US compared to Australia in terms of the adoption and use of managed accounts versus managed funds, it's, you know, if we even get halfway to that, there's still a huge runway to come. And I think, like, as the offerings get more broad and can cater to more situations and, you know, bigger investment menus and asset class exposures, then it's just going to further that cause and further people's desire and adoption of them. As for the future, yeah, I don't know about anything necessarily groundbreaking. I just think it's more asset classes and more strategies that you're going to be able to access on the platforms and via the solutions.

Paul Roach :

Yeah, I mean, the trend line is still very clear. You know, imaps puts out the number of how many people, how many advisors, are using managed accounts or intend to, or will never, and that never column is just getting smaller and smaller and smaller.

Sam Carroll:

It's interesting. Yeah, I see those, I'm like.

Speaker 3:

Why would?

Sam Carroll:

the answer be to anything never.

Paul Roach :

I've spoken to a couple of them in my travels, sam, there are certainly people out there and, respectfully, they have their reasons and they believe in their reasons. But, yeah, that cohort certainly seems to be getting a little bit smaller as a trend. So what advice, then, do you give new entrants into the market? And or what advice would you give your younger self, depending on how you would like to approach this question about advice broadly. And then, obviously, there's a subtext around the use of SMAs, but would you have done anything differently knowing what you know?

Sam Carroll:

now, yeah, so in terms of the adoption of managed accounts and our transition part, probably not. I think we nailed that pretty well. As I said, I think literally within a review cycle we probably had moved, let's say, like 85% of the clients, that it made sense to move over to that solution, and that actually then is the actual advice that I would give to other advisors is that if you decide that this is the path that you want to take and you've done all your due diligence and confirmed that it's going to be the right solution for the client, it's. It's infinitely easier just to like build a project out of it, get in and just get it done in a in a fixed period of time, rather than just sort of dabbling in it and sort of, I guess, stepping around the edges yeah, half and half kind of thing, because it just yes, it's conversations and explaining it all. But again, if you're in it almost every day, it just becomes much more natural and easy to deal with, Sorry, and again the stats bear that out.

Paul Roach :

I remember seeing a graph, maybe a year or two ago, some research that Premium commissioned along the lines of the further into the use of SMAs. You get, both in terms of time but also in terms of percentage of client base that use SMAs and the percentage of an individual client's portfolio that is SMAs. That's sort of the greater advantage that you achieve?

Sam Carroll:

Yeah, absolutely. I think it comes down to just general business decisions, like the more platforms well, platforms aside but like the more investment solutions that you run, like the much greater workload that you're going to have if you're. If you're running, you know three or four different model, like completely disparate model portfolios, or three different platforms. Or you know half an investment solution on managed accounts and half an investment solution on on managed funds, then in theory it's effectively double the amount of work because you're having to recreate it on both sides ultimately. So you know as much as much as it makes sense for the clients, in their best interest, to be able to have it consolidated and a house view and a house solution for that, I think, is a pretty big game changer to the profitability of financial advice firms.

Paul Roach :

And finally, the advice to new entrants, just leaving aside the specifics of SMAs. How do you see the financial advice industry going? It's an interesting place.

Sam Carroll:

Yeah, interesting place Numbers declining. Yeah, 50-odd percent of advisors. Yeah, it's obviously a challenge. Like you look at the stuff that you have to deal with as not only as an advisor but also as a business owner in terms of the costs, I've literally just hired a new advisor, actually, who's very eager and keen, and to get more people like that I think would be very good. But again you look at the stats of who's actually studying financial advice and who's coming in and that whole PY year and everything has to be done there. I think there's definitely an uphill battle, which is good for a well-run advice business.

Paul Roach :

Right, Exactly right. A well-run, efficient advice business who perhaps uses SMAs to the extent that you do Exactly right. Yep, there we go, sam Carroll, appreciate your time. Thanks very much for joining us on Premium's Advice Leaders podcast. Thanks, paul.

Speaker 3:

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