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CPD: Managed Accounts in the ASIC spotlight – compliance essentials for advisers

Identify the key regulatory and consumer protection risks associated with managed accounts, including conflicts of interest, fee opacity and governance failures.

Introduction

The spectacular growth of managed accounts is arguably one of the most notable trends within financial advice over the last decade. Offering efficiency, consistency, and professional investment management at scale, managed accounts are essentially a form of outsourcing, allowing advisers to devote more time to client strategy and engagement. Little wonder then that almost 60 per cent of advisers now use managed accounts[1], with an additional 16 per cent likely to use them in the future. In 2025, advisers directed an estimated 50% of new client inflows to separately managed accounts[2], up from 41% in 2024, and reflecting their growing prominence as a primary investment structure.

But as the adoption of managed accounts has accelerated, so too has the concentration of risk. When thousands of clients are placed into centrally managed models, small design flaws, conflicts, or governance failures can be amplified across an entire client base, and – unsurprisingly – the managed account sector has attracted the attention of the corporate regulator.

Among the strategic priorities listed in ASIC’s 25/26 Corporate Plan[3] is the surveillance of AFSLs offering managed accounts to retail clients. Focusing specifically on governance frameworks, management of conflicts of interest, and outcomes for consumers, ASIC commenced this surveillance in late 2025, issuing ‘please explain’ notices to licensees and separately managed account (SMA) providers, seeking information about any sales and revenue targets, inducements and benefits to offer SMAs to retail clients[4].

For advisers, it is worth remembering that while outsourcing, delegating and automating investment management can deliver substantial benefits to both advisers and their clients, advisers cannot outsource their legal and ethical obligations, and ultimately remain personally responsible for their recommendations and associated outcomes.

This article examines how best-interest obligations, conflicts management, fee transparency, governance and client communication in the managed account environment are being scrutinised by ASIC, and what advisers must do to meet the regulator’s expectations while protecting client outcomes and their own compliance position.

Managed accounts explainer

A managed account is an investment structure where a client’s portfolio is managed to a defined investment strategy by a professional portfolio manager, rather than being constructed security-by-security by the adviser. Unlike a traditional managed fund, the client retains beneficial ownership of the underlying assets, meaning tax impacts are felt at an individual investor level. Day-to-day portfolio construction and rebalancing are handled centrally.

Within the broad managed account category, the two most common types are Separately Managed Accounts (SMAs) and Managed Discretionary Accounts (MDAs).

An off-the-shelf SMA applies a model portfolio to each client, with trades implemented automatically, in line with the pre-defined strategy. For clients with more to invest, tailored SMAs allow more bespoke portfolios. SMAs are offered by a wide range of providers, including fund managers, asset consultants, researchers, and licensees.

Whereas SMAs are financial products, a Managed Discretionary Account (MDA), is classed as a financial service. With MDAs, the adviser or portfolio manager has discretion to make investment decisions and execute trades on the client’s behalf without seeking approval for each transaction, subject to an agreed mandate. Advisers require separate licensing to be able to offer MDAs.

SMAs are the largest and fastest growing type of managed account, accounting for almost three times the Funds Under Management of MDAs and growing twice as fast[5].

Why ASIC is worried about managed accounts – the spectre of vertical integration

Funds held in managed accounts have expanded at an annual average rate of around 24 per cent since 2019, swelling to more than $256 billion[6] by mid-2025, more than three times the balance just five years earlier. Much of that growth has been driven by SMAs, with other managed account offerings – including MDAs and other services – also recording positive, but more muted, growth.

At the same time, the market has become increasingly fragmented, with more than 100 SMA providers and investment consultants operating in the space and the top five providers controlling only around 15 – 20 per cent of assets[7]. That fragmentation, combined with rapid inflows, creates fertile ground for poor practices and conflicts of interest to emerge and persist and create widespread consumer harm.

A particular concern for ASIC is that many of these fragmented providers are also research houses, investment consultants, platform providers or advice groups, firms for whom independence and objectivity are foundational.

Vertical integration, house models and revenue-linked distribution arrangements all heighten the risk that commercial incentives – rather than client interests – drive portfolio recommendations. It is therefore telling that the first phase of ASICs surveillance, implemented in late 2025, involved data gathering around such targets and inducements.

And poor transparency

Poor transparency, around both fees and performance, is another ASIC concern.

The bespoke nature of some managed account portfolios has led some fund managers to claim that specific portfolio holdings represent intellectual property, and they are thus unwilling to disclose these details. This lack of publicly available standardised performance and look-through data for SMAs often leaves clients with no meaningful performance context for their advisers’ recommendations.

As a result, transparency, comparability and adviser accountability are all weakened, and advisers may be unable to demonstrate they’ve met their Best Interests Duty (BID) or to benchmark SMA outcomes against alternatives that might be available.

Fee opacity is also a major problem.

The managed account value chain can involve several parties, from the adviser and their licensee, through to asset consultants, fund managers, and platform providers. As a result, there are often layers of fees, some of which may be opaque to the end investor, and which further hamper comparability and assessments of value.

When fee structures are fragmented across platforms, model managers and advisers, even savvy clients can struggle to understand what they are paying and whether it represents fair value, undermining genuinely informed consent.

Industry bodies themselves have acknowledged this problem, and in early 2025, Adviser Ratings led the launch of the SMA Reporting Standard committee[8], with the aim of bringing “unity and clarity” to fee reporting across the sector.

MDAs: when discretion changes the risk equation

Managed Discretionary Accounts (MDAs) introduce an additional layer of compliance and consumer-protection risk because they give advisers or portfolio managers the authority to transact on a client’s behalf without seeking approval for each trade. While this can improve efficiency and responsiveness, it also removes an important safeguard: the client’s ability to review and consent to individual investment decisions.

In an MDA, the client’s mandate becomes the primary control. If that mandate is too broad, poorly aligned to the client’s objectives, or not regularly reviewed, trades can be executed that are technically permitted but practically inappropriate. This increases the risk of best-interest breaches, particularly where market conditions change or client circumstances evolve.

The discretionary nature of MDAs also heightens conflict and governance risks.

Portfolio turnover, asset substitutions or shifts toward related-party investments can occur without immediate client visibility, making robust conflict controls, monitoring and audit trails essential. For ASIC, MDAs are therefore not simply another type of managed account, they are a structure that demands stronger oversight and more rigorous compliance discipline. (ASIC’s Regulatory Guide 179[9] is dedicated entirely to MDAs).

The importance of conflicts-of- interest management

We described earlier the heightened scope for conflicts of interest across managed account providers, a scope which has clearly influenced the initial focus of ASIC’s surveillance. One of their first priorities will be to shine a spotlight on fees earned for administering managed accounts – legally a grey area – which they will do by examining all arrangements between licensees and third parties collaborating on SMA products. Recipients of the letters sent to SMA providers by ASIC in late 2025 told Professional Planner that the regulator has demanded to see all “contracts and correspondence” between them and SMA investment partners[10].

ASIC expects licensees and advisers to maintain robust conflict-of-interest frameworks that go well beyond generic policy statements.  At a minimum, this should include a current and detailed conflict register that captures all relevant commercial, ownership and revenue-sharing relationships across the managed account value chain. It also requires documented controls that specify how those conflicts are to be managed, such as restrictions on house-product bias, independent investment committee oversight, and separation between research, product manufacturing and distribution functions.

Coincidentally, late 2025 saw ASIC issue an updated edition[11] of its Regulatory Guide 181, (AFS Licensing: Managing Conflicts of Interest).

Key updates to RG 181 included:

As detailed in RG 181, effective management of conflicts usually requires both disclosure AND control mechanisms. Simply disclosing to a client that a model is a ‘house’ product or that a platform receives a fee is not sufficient. ASIC expects to see evidence that advisers and licensees have assessed whether the conflict could influence the advice given and taken steps to ensure that the client’s interests remain paramount.

For advisers, this translates into a practical evidentiary burden. They must be able to demonstrate not only that conflicts were disclosed, but that they were considered when selecting a managed account for a client. This includes documenting why a particular model was chosen over alternatives, how related-party products were evaluated, and how the adviser satisfied themselves that the recommendation was not driven by commercial incentives. In the context of ASIC’s current surveillance, it is this trail of governance, control and independent judgement that will determine whether managed account advice stands up to regulatory scrutiny.

The BID challenge when using managed accounts

Even where portfolio construction and implementation are delegated to an SMA provider, the adviser remains responsible for ensuring that their advice is appropriate, and in the client’s best interests. In the same way ASIC has made it clear (especially via RG 175)[12] that research ratings or APL inclusion are not a proxy for an adviser’s own due diligence, nor is the use of a widely offered model portfolio (in an SMA structure) a proxy for suitability or compliance with BID.

This creates a particular challenge in a managed account context. Because most off-the-shelf SMAs are designed for broad client segments rather than tailored to individual circumstances, there is an inherent risk that advisers will default to a broad-based solution without sufficiently interrogating whether the portfolio genuinely aligns with a specific client’s objectives, financial situation and needs.

In practice, this means advisers must be able to articulate and document why a particular managed account was selected for a particular client. That analysis should go beyond high-level risk profiling and include consideration of time horizon, income requirements, tax position, liquidity needs and any relevant client preferences. For example, a growth-oriented SMA that may be appropriate for a younger accumulator could be demonstrably unsuitable for a retiree drawing down income, even if both clients are categorised as ‘balanced’ under a risk-profiling tool.

Tax outcomes are another often-overlooked dimension. Because clients in SMAs retain beneficial ownership of the underlying assets, rebalancing and portfolio turnover can generate capital gains or losses at the individual level. Advisers therefore need to consider whether a particular model’s turnover, asset mix and rebalancing approach are consistent with a client’s tax position and broader financial strategy, rather than assuming those impacts are neutral.

Adviser accountability and governance

Adviser accountability for client outcomes means they cannot treat SMAs as ‘set and forget’ investment solutions. If a model drifts from its stated risk profile, if underlying holdings change materially, or if performance or volatility moves outside reasonable expectations, the adviser must be able to identify that shift and assess whether the portfolio remains suitable for the client. That obligation exists regardless of whether the change originated with a platform, model manager or investment committee.

For ASIC, the key question is not who made a change, but how it was governed. In a file review, the regulator will likely look for evidence that the adviser was aware of model changes, understood their impact, and considered whether the portfolio remained appropriate. Statements such as ‘the model provider did it’ will not be sufficient. What will be important is whether the adviser and licensee had systems in place to detect changes, assess their relevance for the client, and act when necessary.

What ASIC will expect to see: a practical compliance framework for advisers

Much of their appeal of managed accounts lies in their efficiency benefits, and indeed 2025 research suggests that advisers can save up to 24 hours per week by using them with their clients[13].

Managed accounts offer risk management benefits also – centralised portfolio management allows all clients to be treated equally, and outsourcing to professional investment managers increases the likelihood of better client outcomes, including performance and reduced volatility.

But as already explained, this does not mean managed accounts are risk free from an adviser perspective.

ASIC will seek to test whether advisers and licensees have the systems, documentation and governance in place to demonstrate that managed account recommendations are made and maintained in clients’ best interests.

Evidence they will likely look for includes the monitoring of material changes to asset allocation, underlying investments, risk profile, performance relative to benchmarks, and total costs. They will also expect advisers to demonstrate they are tracking events such as rebalancing, portfolio turnover and substitutions that may have tax or risk implications for individual clients.

Certain events should trigger an adviser review rather than being left to run automatically. These include sustained underperformance, significant changes to the model strategy, increases in fees, shifts in volatility, or changes in a client’s personal circumstances. ASIC is unlikely to be satisfied if a client remains in a model for years without any documented reassessment of whether it remains appropriate.

Red flags that will invite ASIC scrutiny:

When assessing a model provider, advisers should understand:

Client files should contain evidence of:

In the current environment, it is this combination of monitoring, documentation and independent judgement that will determine whether managed account advice meets regulatory expectations.

Conclusion

Managed accounts have become one of the most powerful tools in modern advice, delivering scale, efficiency and access to professional portfolio management. But as their use has grown, so too have the risks that arise when investment decisions are centralised, commercial incentives are layered, and clients are increasingly removed from day-to-day portfolio activity. ASIC’s inclusion of sector surveillance among its strategic priorities makes clear that managed accounts are no longer being treated as a low-risk implementation choice, but as complex structures that demands strong governance, rigorous conflict management and ongoing client-level oversight.

For advisers, the message is clear. The automation and delegation benefits of managed accounts do not reduce accountability – they heighten it. Those who can demonstrate disciplined monitoring, independent judgement and clear client communication will continue to reap the benefits of managed accounts, even in the face of amplified regulatory and consumer risks.

 

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References:
[1] https://www.ifa.com.au/democratisation-of-wealth-nearly-3-in-5-advisers-utilising-managed-accounts
[2] https://financialnewswire.com.au/funds-management/3-in-5-australian-advisers-now-using-managed-accounts/
[3] https://download.asic.gov.au/media/xbtjrb4m/asic-corporate-plan-2025-26-published-27-august-2025.pdf
[4] https://www.professionalplanner.com.au/2025/11/asic-kicks-off-probe-into-sma-conflicts-of-interest
[5] https://www.afr.com/companies/financial-services/conflicts-poor-transparency-riddle-the-256b-managed-account-market-20260102-p5nr6a
[6] Ibid.
[7] Ibid.
[8] https://www.ifa.com.au/adviser-ratings-leads-launch-of-sma-reporting-standard-framework/
[9] https://www.asic.gov.au/regulatory-resources/find-a-document/regulatory-guides/rg-179-managed-discretionary-accounts/
[10] https://www.professionalplanner.com.au/2025/11/asic-kicks-off-probe-into-sma-conflicts-of-interest
[11] https://download.asic.gov.au/media/ebykrtdj/rg181-published-16-december-2025.pdf
[12] https://download.asic.gov.au/media/pqpe0hwc/rg175-published-21-november-2024-20241219.pdf
[13] https://www.ssga.com/au/en_gb/intermediary/insights/investment-trends-managed-account-report

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