More investors opt for managed accounts over super's default

When Commonwealth Bank and Qantas floated in the early 1990s, shareholder ownership increased, and over the next decade it would double to around 15 per cent to 20 per cent of Australians owning shares. Today that number is considerably higher, with workers gaining exposure from their superannuation funds – often via the default balanced option.

The rise of managed funds and a balanced asset allocation via multi-sector products, made widely available, brought efficiency and manager expertise. But it was also at the expense of transparency, investment expertise and flexibility.

Today, the investment environment is shaped by complexity, personalisation and technology. Superannuation funds and financial advisers have evolved beyond default options that are undergoing a fundamental reset.

The evolution to an increasingly sophisticated managed account ecosystem has transformed portfolio delivery for millions of Australians, and has empowered the advice industry to reclaim control previously ceded to large industry funds.

Simplicity has now evolved to systemic innovation. Today, we stand on the cusp of the next evolution, where managed accounts including separately managed accounts and managed discretionary accounts offer financial advisers a scalable framework for delivering advice with institutional-grade portfolio governance, access to a vast array of investment manager expertise, real-time transparency and operational efficiency.

We are experiencing an intelligent shift in portfolio architecture.

The evolution of managed accounts is more than a convenience, it is a structural reengineering of portfolios. The Institute of Management Accountants’ latest funds under management census showed managed accounts in Australia surged to $232.8 billion in 2024, a 23.2 per cent year-on-year increase, driven by strong market performance and $14.4 billion of net inflows in the second half alone.

Notably, SMAs now account for 64 per cent of all managed account assets, with growth concentrated among eight firms managing over $10 billion each.

The most compelling shift lies in the asset mix: exchange-traded funds now comprise 19 per cent of managed account holdings, up from 17 per cent just six months earlier, and are increasingly replacing direct investment in equities.

This marks a decisive move toward liquid, transparent and cost-effective exposures, driven by platform design and investor demand.

For high-net-worth investors, the opportunity now lies in accessing institutional-grade diversification across listed, private and multi-asset exposures, delivered through a well-governed managed account framework.

As managed accounts become more dominant, investors must look past the packaging and examine the architecture, particularly in light of the flurry of mergers and acquisitions in this space. Investors should demand structural independence so that portfolios remain separate from product manufacturers and free of commercial conflicts.

To limit bias and model drift, investments should be backed by credible third-party oversight that is reinforced by strong governance with formal committees, clear rebalancing rules, and scenario testing. These standards should be essential, not optional, for those allocating significant capital.

The future is beyond traditional asset classes. Private credit is in-vogue – but the issue to overcome for managed accounts is that they cannot be constrained to illiquid assets.

Increasingly, we see advisers exploring alternative investments within managed frameworks, pointing to a future where direct exposure to private markets could be democratised through advice channels.

It’s important to recognise that this evolution is not yet scalable across the retail advice ecosystem. Regulatory frameworks, product structures, investment preferences, governance protocols and adviser preparedness remain barriers.

The idea of embedding 20 per cent to 30 per cent private market exposure within a managed account portfolio is conceptually attractive but practically constrained. Should public markets experience a sharp drawdown, strategic asset allocation thresholds may be breached, triggering rebalancing imperatives that can’t be met by illiquid assets.

Private markets, while compelling, lack the liquidity to respond in real time, creating mismatch risk across the total portfolio. In short, while the direction of travel is clear, this level of sophistication is not yet fit-for-purpose for a retail audience.

We are entering a new era of convergence, where the rigour of institutional governance meets the accessibility demands of the modern retail investor. In this environment, financial advisers, investment consultants and investment managers must align to deliver solutions that are not only optimised for outcomes, but built on frameworks that are defensible, transparent and enduring.

The advisers who will lead this next chapter are those who adopt institutional disciplines, evidence-based models, robust oversight, independence and capital market fidelity, while still honouring the agility and nuance of personalised advice.

Managed accounts are no longer a luxury for the few; they are fast becoming the default in a maturing wealth management industry, where the growth and innovation of the ETF ecosystem are driving greater adoption.

To paraphrase Herbert Simon’s Models of Bounded Rationality, the hallmark of a mature investment culture is not the proliferation of products, but the architecture of decision-making behind them.

The frontier is not about access alone. It is about the quality of decisions, the integrity of design and the ability to adapt portfolios with precision and purpose. The future of portfolio construction is here.

This article was originally published in The Australian Financial Review on 1 September 2025.