UPDATE: The $256.2 billion managed account market in Australia is under urgent scrutiny as serious conflicts of interest and a lack of transparency come to light. With average annual growth soaring by 24 percent since 2019, the corporate regulator, ASIC, has initiated a surveillance program to investigate these troubling issues that could impact countless investors.
The managed account sector, which has more than tripled from $80 billion in mid-2020, is now a focal point for ASIC as it seeks to understand the implications of growing investments in separately managed accounts (SMAs). These accounts allow investors to maintain control over their assets, yet many are not tailored to individual needs, raising concerns about their suitability.
The dramatic rise in funds has caught the attention of regulators, particularly in light of potential market volatility triggered by recent political events surrounding former U.S. President Donald Trump. As investors brace for any aftershocks, the urgency of the situation intensifies.
Data from the Institute of Managed Account Professionals reveals that approximately 50 percent of new advised money flows into SMAs, underscoring their growing popularity. However, the sector is fraught with challenges, including a lack of comparative performance data and opaque fee structures, which can obscure the true costs for consumers.
ASIC has confirmed it is examining the governance frameworks and conflict management practices of firms offering managed accounts. An ASIC spokesman stated, “We want to better understand what these dynamics mean… Our surveillance will consider compliance with general licensee and advice conduct obligations.”
The ongoing investigation follows troubling precedents in the investment market, such as the recent failures of the Shield Master Trust and First Guardian, which endangered over $1 billion in retirement savings. Legal experts warn that these cases highlight potential conflicts of interest that may also plague SMAs.
Prominent industry players, including Lonsec and Adviser Ratings, are now calling for greater transparency. While the industry has launched the SMA Reporting Standard aimed at improving fee disclosure, experts say much more needs to be done. Angus Woods, Managing Director of Adviser Ratings, stressed, “If the industry doesn’t resolve transparency and standardisation, the regulator will.”
The scrutiny is not limited to the financial advisory space. Investment platforms promoting managed accounts are also facing heightened inspection. According to ASIC commissioner Alan Kirkland, “Managed accounts can be very attractive for licensees… We’ll be looking at what conflicts may arise and how they are being managed.”
Adding to the urgency, recent market movements have prompted some firms to expand aggressively into the managed account space. For instance, Betashares has acquired InvestSense to enhance its position in this burgeoning market. Generation Development Group, led by Olympic swimmer Grant Hackett, is also betting big on managed accounts, expecting the industry to reach $500 billion by 2030.
As the managed account sector continues to grow, industry experts and consumers alike are calling for immediate action to address these critical issues. The potential for a scandal looms, and regulators are on high alert, leaving many to wonder how these developments will shape the future of investment management in Australia.
Investors are advised to stay informed as ASIC’s surveillance progresses and to carefully scrutinize any managed account offerings. The outcomes of these investigations could redefine standards in an industry where trust has already been shaken.
With the managed account market at a crossroads, the time for transparency and accountability is now.
