Separately Managed Accounts (SMAs) have grown significantly across the financial advice profession. Their ability to deliver efficiency, scalability and consistent portfolio management has made them an increasingly attractive solution for advisers, licensees and clients alike.
As adoption has grown, so too has regulatory interest.
Recent ASIC surveillance activity indicates that the regulator is seeking greater visibility over how SMAs are being recommended, monitored and governed within advice businesses. Particular attention is being directed towards conflicts of interest, governance arrangements, recommendation practices and whether commercial considerations may be influencing client outcomes.
Importantly, this does not suggest ASIC views SMAs as inappropriate products. Rather, it reflects a broader regulatory trend that is becoming increasingly evident across financial services. Regulators are moving beyond the product itself and focusing on the decision-making processes that sit behind recommendations.
For many advisers, SMAs can offer legitimate benefits. They may improve portfolio consistency, simplify administration and provide access to professional investment management. However, those benefits alone do not remove the obligation to demonstrate why a recommendation was appropriate for a particular client.
This is where governance becomes critical.
Where SMA providers are related entities, recommendations consistently favour a specific solution, or commercial arrangements exist between providers and licensees, firms should expect greater scrutiny of how potential conflicts are identified and managed.
A common misconception is that an Approved Product List automatically addresses these concerns. In reality, regulators are increasingly interested in how products are assessed, how recommendations are made, and what evidence supports adviser decision-making.
This means being able to clearly demonstrate:
- How product due diligence is conducted.
- How conflicts of interest are identified and managed.
- How suitability assessments are performed.
- How recommendation patterns are monitored across the business.
- How governance committees review and challenge existing arrangements.
These expectations are consistent with broader regulatory trends. Across areas such as complaints handling, breach reporting, product governance and advice quality, the focus continues to shift from documentation alone towards operational effectiveness.
The same principle applies to SMAs.
The question is no longer simply whether an SMA was recommended. The question is why it was recommended, how that decision was reached and whether the client’s interests remained central throughout the process.
For Responsible Managers and compliance professionals, this provides an opportunity to review existing governance arrangements before regulatory questions arise. Understanding where conflicts may exist, how oversight is exercised and whether recommendation practices can be defended under scrutiny is becoming increasingly important.
Ultimately, ASIC’s interest in SMAs sends a broader message to the industry.
Good governance is not demonstrated by the products you approve. It is demonstrated by the decisions you can explain.
Call to Action
As ASIC increases its focus on product governance, conflicts management and recommendation practices, now is an ideal time to review the effectiveness of your oversight framework.
AICS assists AFSL holders with independent compliance reviews, Approved Product List governance, conflict management frameworks and adviser monitoring programs. Our reviews help businesses identify emerging risks, strengthen governance arrangements and demonstrate that product recommendations remain aligned with client interests.
If you would like to review your product governance framework, contact Cheyenne and the team at [email protected] or call 07 3251 2481.
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