The Chair of the IMAP regulatory Group, Adam Seccombe, provides a review of the work done by the group and looks ahead at the work to be completed.
The IMAP Regulatory Group was established in the second half of 2019 with its purpose and goals as follows:
- i) Deliver on the aspirations of IMAP regarding its core intention of ‘representation’ for the managed accounts sector; and
- ii) Provide a key forum for IMAP corporate members to have regulatory issues properly identified and prioritised.
Membership of the group is nationwide and includes a range of specialised compliance, legal and commercial skill sets that has enabled the group to discuss a broad range of regulatory issues that currently affect retail managed accounts in Australia. Our considerations have typically included the perspectives of managed account issuers, their suppliers, financial advisers and their clients.
In its first four months of existence, the IMAP Regulatory Group has convened three times, and also visited with ASIC twice. Foremost in the issues for discussion by the group have been: disclosure documentation, the ASIC Managed Accounts Project, and the Royal Commission.
Following is a review of these three key discussion areas.
Disclosure Documentation
- RG 179: For MDA providers since October 2017 and for those relinquishing the former ‘LMDA’ conditions, since October 2018, it has become well recognised how difficult it is to both meet all the new obligations for MDAs in a manner that is ‘clear, concise and effective’.
ASIC has been sympathetic to these difficulties and the workarounds that some members have adopted, but it has not been willing to revisit the legislative instrument nor the regulatory guide. Our understanding is that this may get included with the outcomes of the ASIC Managed Accounts Project (see below).
- RG 97 and CP 308: Following the changes made under the Stronger Super Reforms in 2013 and the modifications to the Corporations Act Schedule 10 (CO 14/1252), ASIC released the draft RG 97 in 2014, to become effective 1 February 2017. However, ever since this time, industry reaction has been strong, with criticisms about complexity, cost of implementation, not meeting consumers needs and so forth.
In November 2017, an independent report was commissioned (REP581). This involved a round of industry feedback and consultation sessions. Subsequently, the independent consultant, Darren McShane, made 34 recommendations.
ASIC has now considered which of these recommendations it wants to adopt and what additional steps it intends to take. In proposing to reissue RG 97, CP 308 is now seeking to validate its reaction to the recommendations, with responses due by 2 April 2019.
IMAP will shortly convene an open webinar session, where members of the IMAP Regulatory Group will summarise the key impacts of this. We will then seek feedback as to whether IMAP members have a need for IMAP to compile a response.
ASIC Managed Account Project
As foreshadowed in ASIC’s Corporate Plan 2018-2022, on page 21 in the section titled ‘Action 2018-19’, ASIC is initiating a new project on managed accounts.
ASIC has noticed the significant growth in the managed accounts sector and expects this to continue, with managed accounts becoming mainstream in Australia.
ASIC is now in the process of undertaking research and engagement regarding managed accounts. The scope of the project will be broad and encompass platforms, advisers and managed account issuers, including SMAs, MDAs and IDPS’.
A research survey to advisers has been conducted, along with a benchmarking study into functionality and comparative advantages of platforms. Several platform operators were issued notices in December 2018 to gather specific information that will encompass a review of the types of structure, fees, risks and conflicts of interest, and how these are managed, as well as other relevant issues.
In early 2019, another group, comprising advisers, will be approached by ASIC to gain insights into conduct across the ecosystem of advice development and delivery relating to managed accounts. ASIC will also ask for client files that illustrate live examples.
ASIC has three objectives in this initiative:
- Surveillance may identify harms or concerns, in which case ASIC will take action.
- Awareness of such potential harms or concerns will be raised.
- A high level review of the regulatory landscape for managed accounts may flow from this project, including an industry consultation process.
The IMAP Regulatory Group will be liaising closely with ASIC during the project to see how we can support its efforts and continue to represent the interests of managed account professionals.
Royal Commission
At the end of September 2018, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry released its interim report and following consultation with IMAP members, IMAP submitted a response.
We wanted to stress that well-developed managed account programs lead to better advice outcomes for clients, and better, more sustainable businesses for advisers. We also took the opportunity to clarify the four legal structures under which retail managed accounts are currently offered in Australia (see below).
With the prospect of a final report in February, what is uncertain is the identity of the next Federal Government, which may or may not adopt the Royal Commission’s recommendations. However, what is more certain is that the debate about conflicts of interest and profit motive will continue.
Developing legislation, including the proposed design and distribution obligations, will likely lead to more fiduciary burdens on issuers and advisers to ensure that products being sold to consumers do meet their needs and are appropriate.
Adam Seccombe is Chair of the IMAP Regulatory Group.
