Eugene Ardino believes there is potential for conflicts in managed account structures, but only if the adviser is the licence holder or owns the product they are recommending.
For self-licensed advisers, there is cause for more concern, he says, but this doesn’t necessarily mean they are conflicted.
Ardino, who is chief executive of dealer group Lifespan Financial Planning, says that if revenues for managed account fees flow directly through to the licensee – as they do in traditional licensee models – the potential for conflict is minimised to the point of being manageable. There will always be conflicts in advice, Ardino says, but this separation limits them.
“For there to be a conflict of interest it needs to be in the adviser’s interest… to recommend [a particular product],” Ardino explains. If the adviser isn’t employed by the licensee and doesn’t have an ownership stake in it, and it’s only the licensee that is getting paid for that product or service, then the adviser doesn’t have a conflict.
That leaves self-licensed advisers more potential for conflicts, Ardino says.
That potential isn’t an indictment of self-licensed advisers; further, Ardino argues that if a self-licensed adviser is running an efficient structure for clients, the chances of a conflict occurring are “not a big deal”.
“The potential for conflict there is arguably no more than with any other provider recommending investments,” he says.
Ardino agrees with Lonsec CIO Lukasz de Pourbaix’s view that while commissioner Kenneth Hayne did not recommend a separation of product and advice in his final report for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, managed accounts “can’t fly under the regulatory radar”.
“There will undoubtedly be increased focus on remuneration structures within managed accounts,” de Pourbaix noted, including around “model management fees”; however, extrapolating from that to say all managed accounts are conflicted is inaccurate and reductive, Ardino argues.
“Any vertical integration can create a potential for a conflict,” he says. “But the level of that conflict depends on the ownership structure.”
The model is where the nuance lies, Ardino says. The relevant question is whether the authorised representative is employed by the product provider or has an ownership stake in the product provider.
“The answer to those questions determines how significant the conflict of interest,” he asserts.
Nothing in it
Lifespan Financial Planning was the 23rd largest group licensee owner in the country this time last year, with 155 advisers. This number is now closer to 170, Ardino notes.
He says his advisers have no reason to choose one product over another and, likewise, are under no compulsion to use their managed accounts.
“We do not share or incentivise our advisers in any way, shape or form to recommend those MDA portfolios,” he says. “There’s no benefit for them in selecting those MDA portfolios. Lifespan charges the MDA fee but the adviser doesn’t have a financial interest in Lifespan. Our advisers are self-employed…It’s a licensee fee.”
Ardino acknowledges that “a lot of people in the industry” would maintain that it’s still a conflicted model because the licensee runs it. Remuneration to the licensee could filter down to the adviser, he admits, in the form of subsidised licensing fees, but it could just as easily filter down to the consumer.
A more insidious potential conflict, he notes, is where the licensee makes it difficult for advisers to use something other than the MDA, or penalises them for doing so. He says there are licensees that make the approval process “quite onerous” for advisers who wish to run external products.
“That’s a quasi-way of running distribution into their own product,” he says. “We certainly don’t do that.”