MANAGED ACCOUNTS ON FIRSTCHOICE WHAT YOU NEED TO KNOW

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1 MANAGED ACCOUNTS ON FIRSTCHOICE WHAT YOU NEED TO KNOW Spend more time with clients talking about their financial goals, and less time filling out paperwork. Managed Accounts on FirstChoice is an investment solution, designed to simplify the advice process. What are Managed Accounts on FirstChoice? Managed Accounts on FirstChoice are a series of portfolios constructed from over 100 investment options currently available on the FirstChoice super and pension product investment options menu (not available for investment menu). Managed Accounts allow for simplified ongoing portfolio management for financial advisers (and licensees), with automatic alignment and portfolio changes ensuring client accounts are always kept up-to-date. This may also lead to reduced paperwork in your client reviews, meaning increased capacity for valuable, holistic financial advice conversations. Best of all, Managed Accounts on FirstChoice is delivered at no extra cost. Roles and responsibilities These portfolios are recommended to clients by financial advisers, and set-up and managed by Colonial First State in consultation with your licensee s investment research team.

2 Managed Accounts are built to closely mimic the user experience of Model Portfolios. Like models, Managed Account portfolios are input via FirstNet Dealer. In contrast to models, when fund changes are made, they automatically modify the existing portfolios attached to the Managed Accounts. All of the changes that are made to the Managed Account flow through to all linked advisers and investors. Prior to changes being made to Managed Accounts the Advice Research team will inform you via the Monday Report which will provide an opportunity to update the client regarding the rationale for the change made. The only Managed Accounts available are Advice Research models, not individual firm models. What are the benefits of Managed Accounts on FirstChoice? Efficiency Value Risk You are not disrupted or relied upon to implement portfolio changes, enabling timely, efficient portfolio management. Reduced paperwork in adviser reviews leads to increased capacity for valuable, holistic financial advice conversations. Automatic realignment means your investment is always up-to-date. Increased portfolio construction guidelines adds an extra layer of investment oversight. What are the costs of Managed Accounts on FirstChoice? Managed Accounts on FirstChoice is delivered at no extra cost. For full details regarding FirstChoice fees and costs, please refer to the related Product Disclosure Statement. Ongoing portfolio rebalancing Once you have selected a Managed Account the account is aligned to the investment allocations immediately and at least quarterly ongoing. At time of review, if the client s investment allocation differs by more than 2% from its intended investment allocation, the investment options are switched to match the Managed Account allocation. All clients that have signed up will automatically align to Managed Account portfolio changes via a bulk realignment process. This means no client will be left in an out-of-date portfolio if an adviser is unable to make contact with them in regards to a Managed Account portfolio change. Periodically, portfolios will be reviewed to ensure they align with their intended investment allocation. Opting out of the Managed Accounts on FirstChoice service Clients can opt out of the FirstChoice Managed Account Service at any time by either contacting their adviser or by contacting CFS. You have the ability to opt clients out of the FirstChoice Managed Account service, however this should only be done with the client s agreement. Clients will be notified of the change by their listed communication preference. Please refer to the Frequently Asked Questions below for more information. Model portfolios versus Managed Account Advantages Managed Account Model Portfolios Advice Research constructed Matches client s risk profile Portfolios automatically updated and rebalanced as models/managed Accounts are updated RoAs required for rebalancing or model updates Efficient portfolio management Disadvantages Compatible with adviser discretionary fund changes Compatible with cash liquidity buckets

3 Features to be aware of Managed Accounts on FirstChoice Managed Accounts are designed for clients that are interested in investing in ready-made Managed Account portfolios that are managed on their behalf. The client s portfolios are updated every quarter to match the Managed Account portfolios in an efficient manner. This has implications for clients that may wish to utilise cash buckets, term deposits or may wish to customise their portfolio. Cash liquidity buckets Term deposits Cash bucketing is incompatible with Managed Accounts since the quarterly re-alignment process is applied across the whole account. For example, you will not be able to invest 80% of the client s capital into the Managed Account and 20% into cash for their liquidity needs, since cash options on the platform (except TD s and FirstRate Investment deposits) will be included in the quarterly re-alignment process. Term Deposits can be used as a liquidity bucket. When a term deposit matures and is reinvested into a cash product, it may cause the cash asset class to exceed the 2% rebalancing parameters and may trigger the ongoing portfolio rebalancing process to capture this amount. The term deposit will need to be rolled in order to maintain the allocation to the term deposit. Custom portfolio changes The Managed Account service does not currently cater for custom changes to Managed Account portfolio to meet client s specific requests. For example, if the client has an interest in Ethical investing, they will not be able to replace funds within the Managed Account portfolio to match their ethical requirements. Any custom changes that are made would be reversed by the ongoing portfolio rebalancing process at the next automatic rebalancing period. Frequently Asked Questions Q What is the position on RoAs vs SoAs when attaching clients. For recommendations to clients for use of the Managed Account option, you may use a Record of Advice (RoA) subject to the requirements of the RoA Licensee Standard being met. Use of this service will result in the client account being rebalanced and/or having fund switches, generally, on a quarterly basis to maintain alignment with their intended asset allocation and the model maintained by Advice Research. This will occur without either your or their interaction. It is therefore important to ensure the client understands this, as well as the potential disadvantages of this occurring, such as transaction costs and capital gains consequences. The details of this discussion with the client need be included in your file notes. To support you in explaining this to the client you are strongly encouraged to provide the client with the Managed Account What You Need to Know document located in the supporting tools below. The Managed Account service is intended to be operated with an adviser attached to the account. The client may however make changes to their account without requesting your service. It is important the client understands that where they formally cease their relationship with you and they remove you from their account without nominating another adviser within the Licensee, the service will be removed and they will need to manage their portfolio personally. When recommending this service, you are not required to recommend the client be on ongoing service as their portfolio will be regularly reviewed. However, you may wish to recommend ongoing service based on the other circumstances of the client and their need for ongoing strategic support.

4 Q Where are Managed Accounts visible in FirstNet Adviser Advanced Search Managed Account usage reports Client review reports Managed Account Library Q. What transactions are associated with the service? There are three different occasions where a transaction may be generated on the investor s behalf in the service: When joining Managed Accounts; When a change to the Managed Account portfolio is made; or Quarterly re-alignments. On every occasion the accounts eligible investments are reviewed to match them to the investments in the FirstChoice Managed Account portfolio that has been selected. If any option is outside of a 2% tolerance, a switch transaction will occur so that all options again match the intended allocations. Q. What are the Quarterly re-alignment dates? Quarterly re-alignment dates are the same as CFS s Auto-Rebalance dates, to the nearest business day: 15 th of February 15 th of May 15 th of August 15 th of November Q What performance reporting will be made available? Clients will be able to see their individual level performance as they do today. There will be an additional line item above their investment options that indicate which Managed Account service they are within. Q How do clients opt in and what happens The offer is only available online. You can apply for FirstChoice Managed Accounts in two ways: 1. By instructing us to invest in FirstChoice Managed Accounts when a FirstChoice Personal Super or FirstChoice Pension account is established through E-Setup. Investors will see an election on E-Setup in the confirmation summary and the online printed version of their application form. 2. By instructing us to invest existing FirstChoice Personal Super or FirstChoice Pension account into a FirstChoice Managed Account through a financial adviser via the new Managed Accounts library on FirstNet Adviser. Adding a client to a FirstChoice Managed Account mimic s the process flow of current Model Portfolio functionality. Starting from the new Managed Account library screen, you can go through the existing work flow. A new Managed Account switch form has been built to accommodate an investor electing to join the service. Q How do clients become opted out of the service and what happens? Clients will be opted out when: You or your client instruct CFS or; The client dealer group changes; Your dealer group ceases to provide Managed Account services to CFS. Clients can contact CFS over the phone or in writing. There is no standard form on the website and you can do this in the Managed Account library, or by attaching the clients account to a new Managed Account service. Where a client verbally

5 informs you to cease the Managed Account service, this consent and action taken should be confirmed in writing/ to the client and retained on file. On all occasions a client will receive a letter outlining the following: 1. The client has been removed from a MA service 2. The removal date 3. The client s investments weightings remain the same 4. No cost have been incurred 5. The client s portfolio will no longer be updated 6. The client s portfolio will no longer be re-aligned Q How will advisers get confirmation a client has opted in or opted out of the Managed Account service. Advisers will be able to confirm clients are within the service via the Managed Account Library, as well as relevant reports. On detachment, adviser will receive an alert on their FNA dashboard. At launch, the adviser will need to run a Managed Account usage report to see who has been detached. Likely within the following six months, a detach history page will be available showing the most recently detached clients. Disclaimer This document has been prepared for the general information of authorised representatives only. This document is not to be distributed to clients without prior approval of Advice Research. It does not represent advice specific to any particular investor. Research makes no warranty as to the accuracy, reliability or completeness of any information contained herein. Investments are subject to a number of risks and the repayment of capital or the investment performance of any financial product covered in this document is not guaranteed. Past performance is no guarantee of future performance.