The new regulatory environment

Andrew Bradley (Herbert Smith Freeholds Kramer) and Francy Taylor (Colonial First State Investments) explore some emerging themes in Australia’s regulatory landscape in relation to managed accounts.

The last two years have been a particularly busy time for ASIC, with its focus stretching across many aspects of the adviser and platform space, ranging from managed investment schemes and managed accounts, through to conflicts of interest, rebates and discounts.

A good example of the regulator’s focus on both platforms and advisers is ASIC Report 779 ‘Superannuation choice products: What focus is there on performance?’. This report specifically examines the role of superannuation trustees, financial advisers and Australian financial services licensees in influencing the investment options that make up member super portfolios as part of a choice superannuation product. Importantly, this review considered the focus on performance, as investment in persistently underperforming choice products adversely impacts member retirement outcomes.

By Jayson Forrest

Continued.....

Speaking on the topic of ‘The new regulatory environment’ at the 2026 IMAP Advice in Action Conference, Andrew Bradley — Partner at Herbert Smith Freeholds Kramer — acknowledges that Report 779 has significant obligations on both platforms and licensees in a number of areas, including approved product lists (APLs).

“Even for lawyers, the legal landscape has been difficult to unpack over these last couple of years. The industry is currently undergoing a fair bit of change as a result of this regulatory scrutiny,” says Andrew.

Using APLs as an example, Andrew confirms that while the APL is the responsibility of the advice licensee to determine, in Report 779, ASIC talks about trustees needing to have more oversight of the performance of investment options. This includes testing whether investments should be included on a menu or not, rather than just adding investments onto the menu at the request of advisers.  

“What we’re seeing now, particularly in the wake of Shield and First Guardian, is a lot more scrutiny from trustees on investment options,” says Andrew. “However, we’re seeing many trustees grappling with the idea of whether they should be exiting clients out of investment options or ‘soft closing’ them, and the adverse tax impacts of doing so.”

Another substantive area the regulator has been looking at are ‘conflicts of interest’, particularly in relation to conflicted remuneration. This is certainly a feature in ASIC’s Managed Accounts Review, where the regulator is scrutinising licensee compliance, fee and performance transparency, management of conflicts of interest (including conflicted remuneration), and overall consumer outcomes when using managed accounts.

According to Andrew, while conflicted remuneration is an issue the industry is acutely familiar with — such as payment incentives to recommend a product — he believes the understanding of conflicts of interest more generally are probably a little less recognised.

While it remains to be seen what will come out of ASIC’s Managed Accounts Review, Andrew does believe conflicts of interest will be a key theme for the regulator. Specifically, he points to two areas:

1. Testing the platform to gauge whether it is looking after members’ interests when putting products/investments on menu or whether the platform is effectively acceding to the wishes of a licensee; and

2. Testing whether advisers are providing fair and honest recommendations and advice to clients, or whether they are just recommending related-party products.

“Many advice licensees already have a managed accounts arm and are putting clients into these products. I believe questions will be raised by ASIC about that,” says Andrew. “However, there are good reasons for doing so. As we come out of this first round of review, it will be up to the industry to clearly explain why.”

In terms of ‘rebates’ and ‘discounts’ on offer by platforms to advice groups, Andrew believes that any money flowing back to clients is a positive and will unlikely draw much criticism from the regulator.

“Instead, what we probably will see is a focus on why there are very similar managed accounts on different platforms, but with very different net accounts because of discounts. Also, why there are options on platforms that look the same but there is a discount for some members and not for others.”

However, Andrew acknowledges that testing these arrangements is challenging, because often discounts are given on projected revenue and FUM, which can suddenly change. This means platforms can end up with a group of clients who really can’t be justified to receive a discount based on scale but nonetheless, they still receive a discount. 

“While these issues will likely get some focus by the regulator, ultimately, I believe discounting and rebating is money back in members’ hands. Therefore, it probably isn’t the number one consideration on ASIC’s mind.”

According to Francy Taylor — Executive Director of Managed Accounts at Colonial First State Investments — there has already been murmurings within Treasury in relation to extending the APRA Performance Test (an annual evaluation that checks if super products meet specific benchmarks for net investment returns and fees, acting as a safeguard to expose chronic underperformance in funds) to externally directed products (EDPs) and managed accounts.

An EDP is a diversified choice superannuation investment option where the super fund trustee or a connected entity does not control the investment management and does not set the strategic asset allocation.

Andrew says the APRA Performance Test was brought in for a default environment where clients were not choosing their investments. So, in a MySuper context that compares like for like, the performance test does make a lot of sense. However, not so for EDPs.

He explains: “Talk about extending the performance test to EDPs has been around since the test first started in July 2021. We’ve seen some consultation and draft legislation to extend the test to EDPs. However, by extending the test to EDPs, the test can only really apply to funds that have been around for 10 years. So, such a test isn’t going to address the risks of a Shield or First Guardian, or a fund that hasn’t got 10 years of performance history.

“In that context, I believe extending the test to EDPs has limited value. Again, if you think about a portfolio, unless it’s defined as a diversified option that is intended to be a whole-of-portfolio solution, then I don’t really know if there is a lot of benefit in extending the performance test to EDPs.”

While also uncertain about the value in extending the performance test to MDAs, Andrew confirms there is considerable interest in this structure by the regulator, as it places a lot more of the compliance burden back onto the licensee, compared to the platform. In contrast, the simplicity of the SMA model means that governance and oversight of the product can be housed within the platform.

“However, while I’m still a big fan of the SMA model, I’m definitely seeing a trend towards MDAs as a solution that people are increasingly exploring. This means MDAs will attract more attention from the regulator,” says Andrew. 

When considering IDPSs, Andrew’s view is that people tend to underestimate the level of duty that exists in an IDPS.

An IDPS is an administrative investment platform — commonly known as a wrap account, master fund, or master trust. It provides custodial, transaction, and consolidated reporting services that allow individual investors or their financial advisers to buy, sell, and track multiple underlying assets through a single centralised service.

“In terms of duty, the IDPS class order outlines that you must act honestly. Most of your legal requirements around ‘best interest duty’ applies to an IDPS. There is also an overlay into super with the Superannuation Industry (Supervision) Act’s governance obligations around investment management, oversight, and due diligence,” says Andrew.

Francy adds what was very clear from the interviews she has had with ASIC is that the regulator is looking to see documented and repeatable frameworks, which are consistently applied in every stage of a platform’s decision-making process.

“ASIC is really looking through each of these documents to see that there is consistency in the decision-making process. So, that really needs to be a focus for all businesses,” she says.

Andrew emphasises that while the industry is unlikely to get the same level of regulatory focus on performance with IDPSs (unlike superannuation), it will nonetheless get the same level of scrutiny with investment governance, particularly in relation to risk and return, and the inclusion of products on menu.

With the recent appointment of Sarah Court as the new Chair of ASIC, Andrew expects to see a greater focus on enforcement across all sectors of the industry over the coming years.

“Sarah is a formidable regulator and enforcer, having previously served as ASIC Deputy Chair and Commissioner at the Australian Competition and Consumer Commission (ACCC),” says Andrew. “Sarah is a strong believer in deterrents through enforcement.

“ASIC has been very vocal about its record penalties and its record number of actions. The regulator tripled the number of investigations launched over the last two years. So, the industry can expect to see more enforcement across all sectors.”

And what about the regulatory view on wholesale advice and offerings?

Andrew believes it will still take the regulator some time to catch up with the trend towards wholesale investing and advice. However, he does offer two opinions on wholesale:

1. The threshold test to be a wholesale client hasn’t changed since Financial Services Reform (FSR) commenced in March 2002. He says under that criteria, more people are increasingly becoming wholesale clients.

2. Self-managed superannuation funds (SMSFs) are the biggest source of wholesale funds in Australia.

“SMSFs are a grey area,” says Andrew. “Our view is you at least need $10 million in order to access an SMSF as a wholesale investor. The Australian Financial Complaints Authority (AFCA) classifies SMSFs as retail unless it holds net assets of at least $10 million. ASIC has previously said AFCA was wrong, but has since backed down and is now completely agnostic on this issue.

“AFCA is currently lobbying the Government to change the law around the retail/wholesale classification of SMSFs. So, I think we will see some movement in the wholesale space, particularly around SMSFs. That’s because if you look at the size of superannuation assets alone, too many people are considered to be wholesale.”

Andrew Bradley is Partner at Herbert Smith Freeholds Kramer; and

Francy Taylor is Executive Director of Managed Accounts at Colonial First State Investments.

They spoke on the topic ‘The new regulatory environment’ at the 2026 IMAP Advice in Action Conference