Individually managed accounts (IMA) are growing in popularity among Australian investors, primarily due to their tax advantages, according to a boutique fund manager.
IMAs were being used to effectively manage taxation results and were being driven by the relatively small, dispersed numbers of clients for whom the IMA structure was applicable, Private Portfolio Managers (PPM) founder and chairman Hugh MacNally said.
"Over the years it's become a significant number, in the order of 1.5 per cent per annum, as the advantage of having an effective taxation strategy," MacNally told InvestorDaily.
"If you're getting a return of under 10 per cent and you can enhance that by over 1 per cent, it becomes very valuable and an important part of managing a portfolio."
The structure of an IMA means the investment portfolio is managed according to the circumstances of an investor, therefore, each person is treated as a separate entity and individual risk, return and tax characteristics are targeted.
Financial advisers and accountants could add value to their clients by specifying what the tax objectives were, as it had now been recognised that the management of the after-tax position was vital to the construction of a portfolio, MacNally said.
"It's very difficult to consistently manage the after-tax position in a pooled [managed] fund," he said.
"An IMA might have a relatively low turnover of stocks, so you don't have the crystallisation of capital gains all the time and you don't get short-term capital gains realised in a personal portfolio where there's a very high tax rate."
IMAs had not been used widely by financial advisers, although sentiment was beginning to change, he said.
"They are not new, it's just that they haven't been used as widely in Australia as they have been in the United States, but [advisers] are starting to recognise the value that this approach has for their clients," he said.
Technological developments had enabled IMA services to expand, allowing managers to produce highly detailed reports and ultimately manage those types of portfolios in a sophisticated fashion, he said.
