UPDATE: The Australian managed account market, now valued at $256.2 billion, is under intense scrutiny due to potential conflicts of interest and a lack of transparency. This urgent situation comes as the sector has experienced an explosive annual growth of 24 percent since 2019, prompting attention from the Australian Securities and Investments Commission (ASIC).
Recent developments indicate that the managed account sector, which has tripled in size since mid-2020, may be harboring issues that could lead to financial scandals. With market volatility heightened by events surrounding US President Donald Trump, investors are advised to remain vigilant.
The landscape of Australia’s investment market is shifting, and the Institute of Managed Account Professionals reports that much of the recent growth is attributed to separately managed accounts (SMAs). Unlike pooled investment vehicles, SMAs allow investors to retain control over their assets, potentially offering advantages for tax management. However, this structure also raises questions about whether these products truly meet individual investor needs.
According to Adviser Ratings, about 50 percent of new advised money is flowing into SMAs, highlighting the increasing reliance on these accounts within the financial advisory landscape. There are currently around 116 separately managed account providers in Australia, including well-known names like Morningstar, Vanguard, and Macquarie.
The rapid influx of capital into this sector is concerning, as it opens the door for questionable practices and conflicts of interest. A recent report by Macquarie highlighted that the top five providers control only 15-20 percent of the market, suggesting fragmentation that could complicate regulatory oversight.
“ASIC is beginning a surveillance program focused on licensees that recommend and provide managed accounts to retail clients,” an ASIC spokesperson stated. This initiative aims to examine compliance with financial conduct obligations and the management of conflicts of interest. The regulator is requesting extensive data from providers, including customer files and marketing agreements.
In a recent speech, ASIC Commissioner Alan Kirkland acknowledged the growing significance of managed accounts in the investment sector. “We’ll be looking at what conflicts may arise and how they are being managed,” he emphasized.
As the industry grapples with these challenges, efforts are underway to enhance transparency. The launch of the SMA Reporting Standard in April, spearheaded by Adviser Ratings, aims to standardize data and fee reporting. Despite this being a positive step, industry leaders warn that more work is needed to avoid regulatory intervention.
“There is recognition that if the industry doesn’t resolve transparency issues, the regulator will,” said Angus Woods, managing director of Adviser Ratings.
The urgency of this situation is underscored by the recent collapses of investment schemes like Shield Master Trust and First Guardian, which put over $1 billion in retirement savings at risk. These incidents have heightened awareness and scrutiny of sales practices related to managed investment schemes, including SMAs.
Industry experts, like King & Wood Mallesons partner Stephen Jaggers, have drawn parallels between these recent failures and potential conflicts of interest within the managed account market. “Trustees of SMA products should be reviewing distribution arrangements in light of ASIC’s probe,” he advised.
The ongoing examination of SMAs by ASIC comes at a crucial time when the managed account sector is projected to grow significantly. Grant Hackett of the Generation Development Group previously indicated that the sector may approach $500 billion by 2030 and eventually exceed $1 trillion.
As the financial advice industry faces mounting pressure to address these issues, the call for greater transparency and accountability in the managed account market has never been more urgent. Investors are encouraged to stay informed and remain cautious as regulatory bodies ramp up their scrutiny.
With the managed account sector at a crossroads, the actions taken now will shape its future and the security of investors’ assets. Be prepared for more developments as this story evolves.
