Best Interests Duty are Top Priority of Advisers

Five years since its introduction, financial advisers focus on Best Interests Duty (BID) has not diminished as it and the client benefits of using platforms remain top of mind.

Speaking at Financial Standards 2019 Best Practice Forum on Managed Accounts, HUB24 Head of Retail Distribution Greg Newman said advisers were “crying out” for refresher information on BID and for it to be contextualised in the current operating environment with its customer-centric focus.

“If the ultimate winner at the end of the day is not the client, all the technology and all the benefits are going to be lost.”

In a survey conducted last year by CoreData on behalf of HUB24, 86% of advisers said they were happy with the inhouse training they had received on BID.

“However there wasn’t a full understanding of all the tools now available and how they synthesised with BID obligations,” said Newman.

This was particularly the case with tax optimisation, one of the main benefits of using managed accounts and which can assist the netting of assets when trading, modelling CGT impacts to help manager selection, tax parcel optimisation at an account level and control of when assets are sold or kept to manage Capital Gains Tax.

While price and broad investment menu were identified by advisers are important factors in selecting a platform solution, the number one concern for adviser was the features of a platform which impact BID support.

Efficiencies were not identified by advisers as a factor when selecting a platform, but Newman said more recent feedback from advisers shows it is.

“[Advisers say] It is important to me because I can do more with my client.”

In conclusion, Newman noted while the evolution of managed portfolios was lockstep with the introduction of BID, there is a slight disconnect between what is available and what is needed.

Paragem Managing Director Nathan Jacobsen provided a case study¹ on the impact managed portfolios can have on a business.

He said an advice practice with three financial advisers in the Paragem network moved to managed portfolios in 2016 because their business was not growing as they wanted it to. They had used a core and satellite investment approach with managed funds providing the backbone of client’s portfolios and direct shares used around this.

The practice found the benefits of managed portfolios to be compelling with a significant reduction in costs to clients, with one client benefiting from a 40 basis point reduction.

Other benefits included more time with clients, an increase in revenue from $800,000 to $1.2 million in one year (across 140 clients on average across three advisers), a reduction in advice to administration staff ratio by 44 percent and an increase in client referrals.

¹Data relates to 2016 and was taken at a point in time. HUB24 contacted the referenced licensee in August 2019 and confirmed that the feedback is still applicable today. Original source: HUB24 Whitepaper pg. 9 “Managed Portfolios: A sound investment in your clients and your business”.