Leading players in the asset consulting game say they are unfazed by the idea of greater scrutiny by the corporate regulator, provided the end result of ASICs attentions is better outcomes for end investors.
Genium Investment Partners co-CEO and head of research Tim Murphy said regulatory scrutiny of asset consultants is currently insufficient.
“At the moment there’s a lot of opacity around all of that data and assessment,” Murphy told the Professional Planner Researcher Forum in the NSW Blue Mountains earlier this month.
“There is an opportunity there for more oversight and that would be one of things that would contribute to consolidation finally happening, because that’s probably where you will see bigger, better resourced providers more likely to meet any sort of regulation that does come our way over the coming years.”
Jo Cornwell, head of manager research at asset consultant Evidentia, agreed there’s not enough scrutiny, but only to a point, and she pushed back on the idea the industry should unquestioningly be more regulated.
“We have to be careful as an industry and make sure regulation remains appropriate and in the best interest of the end investor,” Cornwell said.
“If we remain focused on that end investor and what is in their best interest then hopefully this part of the industry can guide the regulatory environment hopefully in a better way.”
Ironbark Asset Management investment solutions CEO Alex Donald also agreed that more regulation is fine as long as it’s the “right” regulation. Ironbark is the responsible entity (RE) for $45 billion of funds under management, in roughly 400 model portfolios.
“[Regulation is] clearly coming, and I don’t think there’s anything wrong with the regulator taking an eye on a market segment that’s growing very considerably,” Donald said.
“There is always going to be pockets within any part of the market where practice might not be best practice. But it’s then, how do we encourage best practice in the industry?”
However, Donald noted that REs and managed investment scheme structures are already guided under a “strong” regulatory environment due to the governance models of trustees.
He also pointed to the regulatory pressure super funds have been under on performance, including the Your Future Your Super performance test and ASIC’s Report 779 on measuring performance in Choice products, questioning whether it’s generating better client outcomes.
“One of the challenges in the regulation that we’re talking about in the industry-super-fund-land is has it had the right outcomes? It’s been well debated and there has been quite a strong focus on performance in there. Arguably it’s not necessarily driven a thriving client-centric outcome.”
Mind the gap
Asked whether Ironbark and Evidentia are playing the role dealer groups and licensees used to play in creating a community amongst the people that use their services – and whether that was a deliberate strategy – Cornwell agreed with the assessment but said it’s not an exclusive club “in any sense”.
“What we are trying to do with the businesses we work with is to help them be better businesses,” Cornwell said.
“We can do that by the solutions and services that we as consultants and investment professionals have, but another way we can do that is by connecting them to their peers and they can learn from each other.”
Donald said the background of the Evidentia relationship with Ironbark was one where the former made a conscience decision when they built their business to use an external RE for all the managed accounts they built.
“That’s how it started which obviously we were delighted with and has continued to thrive,” Donald said.
“It’s not the case anymore. Evidentia has a number of clients that they’ve either taken over managed accounts or built new ones with the internal REs of the platform.”
Donald said Ironbark runs an “asset consultant-agnostic” platform because “we have to”.
“There’s a strong network and we know each other well, but there’s nothing deeper or commercial beyond that,” Donald said.
Known unknowns
As the industry grapples with the full breadth and depth of the organisations that describe themselves as “asset consultants”, Donald said understanding of the field was probably not as advanced as he thought it was.
“There’s a lot of terms in here, there’s a lot of confusion around what different structures are,” Donald said.
“Our opportunity to lead the industry around regulation, how to educate the regulator on these things – again if we don’t understand it, we’re at risk of having blanket regulation coming in. It’s our responsibility to educate the regulator.”
Murphy said more transparency across numbers in the sector will improve understanding.
“Even moving on then to the measurement and performance and assessment and this high adviser satisfaction with their consultant,” he said, referring to an earlier presentation by CoreData Research that identified the challenges in researching the breadth of the industry.
“How are they actually measuring that? I’d probably argue it’s more softer skills rather than actually quantifiable empirical data to support that.”
In reference to the CoreData presentation, Frontier Advisors principal consultant Claire Casucci said she’d expected there were only around 100 asset consultants and was surprised by what was presented to the room.
“Frontier’s heritage is working more in the institutional space, we’re used to having in the large insto space four asset consultants,” Casucci said.
“We’re certainly aware of some of the more boutique operators working with financial advice businesses.”
While much of the forum covered the rise of asset consultants and the gatekeeper role they play in the industry, Murphy said advice businesses and licensees have always historically used asset consultants in different ways.
“What’s really evolved, certainly post [Hayne] royal commission and post-FOFA [which] was the initial genesis of the growth of this service offering.”
Murphy noted the gradual shift from advisers spending time selecting investments to outsourcing that to third parties like asset consultants or researchers.
“With the increasing focus on profitability amongst the advisers, and there’s all sorts of data out there on the profitability of advisers that outsource most things versus those that try to do lots themselves,” Murphy said.
“As more and more advisers come to recognise that and move to the sort of outsource model, that’s obviously created rapidly increasing demand for outsourced services in this case.”
Donald said the demand for asset consultants is due to the governance structures required to run managed accounts.
He added his firm runs under the separately managed account structure, which is a financial product, rather than the managed discretionary account structure, which is a financial service.
“[We’re] in a regulated managed investment scheme on a platform under a super trustee,” Donald said.
“For that reason…every capability we build involves an asset consultant. Most governance structures would dictate there’s an asset consultant at the table. Unless there’s a big internal investment team.”
Regulators need to have clear-eyed oversight where it is the practice of Asset Consultants and their RE’s to co-invest in financial planning practices that use their collective product. Our profession has made big steps away from vertically integrated distribution models for very good reason. I’m confident that the regulator is alive to the conflicts that can occur in these models; the scrutiny of these models is deserved and needs to be a feature of the regulatory program.