Why Managed Accounts Lack Scalability: Key Challenges and Alternatives

Asset managers increasingly find themselves at a crossroads with managed accounts. While these vehicles excel at delivering personalised investment solutions, their inherent structure creates significant barriers to growth. Understanding these limitations becomes crucial as firms seek to expand their alternative investment offerings efficiently.

Customisation and Individualisation on Managed Accounts

High Administrative Burden

Managed accounts traditionally pride themselves on tailored investment approaches – yet this same characteristic often becomes their Achilles’ heel. Each new account demands its own:

• Investment strategy calibration
• Portfolio monitoring protocols
• Performance reporting frameworks
• Risk management parameters

As client numbers grow, these individual touches quickly consume disproportionate resources. Investment teams find themselves spending more time on account administration than actual investment analysis and execution.

Complex Compliance Requirements

The compliance landscape for managed accounts creates particular challenges at scale. Consider a firm managing accounts across multiple jurisdictions. Each account must navigate:

• Local restrictions
• Reporting requirements that vary by region
• Client-specific mandate monitoring
• Overlapping regulatory frameworks

This regulatory matrix becomes exponentially more complex with each new account, forcing firms to either limit growth or significantly expand their compliance infrastructure. Many find themselves caught between maintaining service quality and achieving operational efficiency.

The limitations of traditional managed account structures have become increasingly apparent as alternative investments move mainstream. Asset managers now face mounting pressure to find solutions that preserve customisation while enabling sustainable growth.

Operational Challenges with Managed Accounts

Limited Operational Efficiency

Managed account services present complex operational hurdles that challenge even the most sophisticated wealth management teams. The individualised nature of each client portfolio demands meticulous, time-intensive processes for rebalancing, performance tracking, and customised reporting. Manual interventions become inevitable, creating significant barriers to scaling advisory services efficiently.

Technology Constraints

Technological solutions for managed accounts rarely offer plug-and-play functionality. The unique requirements of individual client portfolios necessitate extensive system customisation, driving up development and maintenance costs. Standard off-the-shelf platforms fall short, forcing financial firms to invest heavily in bespoke technological infrastructure that can adapt to nuanced client needs.

Cost Considerations of Actively Managed Accounts

High Cost of Service Delivery

Personalised wealth management comes with inherent economic challenges. Bespoke investment strategies, granular reporting, and high-touch client interactions create a cost structure that far exceeds traditional investment approaches. These elevated service expenses cannot be easily absorbed, forcing firms to carefully balance client value against operational economics.

Economies of Scale

Unlike pooled investment vehicles, managed accounts struggle to achieve meaningful cost efficiencies as they grow. Each new client requires proportional resource allocation, effectively neutralising potential scale advantages. This structural limitation constrains profitability and complicates long-term growth strategies for wealth management firms.

The fundamental economics of individualised portfolio management create a persistent operational challenge that defies conventional scaling models.

Alternative Solutions 

Fund Structures

Pooled investment vehicles represent a strategic alternative to individually managed accounts. Mutual funds and hedge funds enable asset aggregation, creating meaningful economies of scale. By consolidating investor resources, these structures dramatically reduce administrative complexity and compliance costs, offering investment managers a more operationally efficient framework.

Securitisation

Securitisation transforms traditional investment approaches by converting illiquid assets into tradable securities. This methodology eliminates the need for intensive, individualised portfolio management. The result is a more standardised, scalable investment distribution model that increases market accessibility and reduces operational friction.

Technology-Driven Platforms

Technological innovation is reshaping alternative investment management. Modern investment platforms streamline administrative processes, standardise data management, and enhance overall investment accessibility. These digital solutions provide a robust, scalable infrastructure that addresses many limitations of traditional managed account approaches.

Conclusion

The managed account framework presents a nuanced challenge for investment professionals. While offering unparalleled personalisation, these accounts inherently struggle with scalability. Complex administrative requirements, rigorous compliance standards, operational inefficiencies, and elevated service costs create substantial barriers to sustainable growth.

As alternative investment markets continue to evolve, forward-thinking investment managers must strategically pivot. Pooled investment vehicles, securitisation, and technology-driven platforms emerge as critical alternatives, offering pathways to enhanced operational efficiency and market responsiveness.

Investment firms navigating these complex terrain can transform potential limitations into strategic opportunities. By carefully selecting innovative structures and leveraging advanced technological solutions, organisations can streamline operations, optimise cost structures, and effectively expand their service offerings to meet increasingly sophisticated investor demands.

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Disclaimer

FundFront provides operational and technological solutions for fund structuring, securitisation and management. We do not provide legal, tax or financial advice. We recommend that you consult with professional legal or financial advisors to ensure compliance and appropriateness for your specific situation.