Financial Planning
Beware adviser conflicts of interest: Lonsec

Managed accounts have the potential to create significant conflicts of interest and conflicted remuneration for advisers.

According to Rainmaker data, 29% of the investment platform market in Australia is in managed accounts already and that number is growing every year.

According to Lonsec head of wealth management sales Tony Nejasmic, advisers must be wary of the conflicts that exist.

"Managed accounts have the potential to create significant efficiency gains and improve investment outcomes for advice clients," Nejasmic said.

"But if advisers don't properly address the how and why of managed accounts, they risk creating a conflict trap that puts their entire business at risk."

Financial Standard recently questioned ASIC about its work in regulating managed discretionary accounts (MDAs).

The regulator said it is reviewing MDAs and as part of that review has demanded certain information from platforms and MDA providers - including information in regards to fees.

Nejasmic was previously head of sales at Xplore Wealth, a platform which allows advisers and advice groups to use its MDA licence and create their own model portfolios.

"The test is to picture yourself before the regulator and ask yourself if you have a clear justification for placing the majority of your clients' funds in your own managed account products," Nejasmic said.

"If you're unsure of the answer, then you're likely not offering the best value for your clients and you're likely not fulfilling your best interest duty."

He added that for many advisers outsourcing their investment to a professional investment manager is the logical approach.

"Lonsec is also in the market to acquire investment management rights from those groups who wish to "de-conflict" their business," Nejasmic said.

In response to Financial Standard enquiry, a spokesperson from ASIC explained that the regulator expects advisers to be able to prove how an MDA is in the best interest of their clients.

"ASIC also expects advisers and AFS licensees to monitor the performance and ongoing appropriateness of the MDA service for their clients," the spokesperson said.

Read more: MDAASICLonsecFinancial StandardRainmakerTony NejasmicXplore Wealth
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