The Fold Legal's Simon Carrodus (left) and Minter Ellison's Richard Batten

The corporate regulator has started paying extra attention to possible areas of conflict within managed accounts, report financial services lawyers, with firms that make predetermined decisions to put clients into in-house model portfolios and those that charge managed account fees under increased scrutiny.

While vertically integration remains in play for the advice industry, lawyers believe associated practices within managed accounts are attracting a heightened level of attention from the regulator that needs to be mitigated by extra vigilance around compliance.

Speaking on a IMAP webinar on Wednesday, The Fold Legal partner Simon Carrodus said practices need to be aware of the regulator’s increased focused on managed accounts.

“It’s already started and it’s not going away anytime soon – ASIC will be applying much more scrutiny to in-house products, including managed accounts,” he said.

According to Minter Ellison partner Richard Batten the increased interest from ASIC in managed accounts is a reflection of how popular, and ubiquitous, the structures have become.

“ASIC is certainly getting more interested in how these products and structures are being used,” he says, adding that the regulator’s focus sharpens when the products offered are in-house.

“There is an inherent potential conflict where you’re effectively advising into your own product as opposed to someone else’s,” Batten continues. “We’re getting a lot more enquiries from advisers and licensees in that area, around the structuring of those sorts of offers and making sure they’re appropriately compliant.”

ASIC’s interest in best interest duty is also heightened when the client is being charged a managed account fee.

“We don’t have any direct regulation on the amount or nature of fees charged under that type of fee arrangment,” Batten says. “But if it’s ultimately benefitting the firm there is much greater potential for scrutiny.”

MDA project on hold

ASIC remains keen to get a better handle on the managed account sector.

In March 2020 ASIC suspended its managed discretionary accounts project due to the pandemic after looking into the sector for 18 months.

At the time, ASIC’s senior executive leader of investment managers, Rhys Bollen, said the regulator served notices under its compulsory information powers to nine platform operators, seven managed account providers and two dealer groups.

Today, an ASIC spokesperson said the project remains on hold due to the impracticality of starting again during lockdown and with competing priorities.