Conflicts of interest go beyond vertical integration, says CEO

In a contributed blog, Lifespan Financial Planning chief executive Eugene Ardino wrote about debate within the industry around whether managed discretionary accounts (MDAs) present a conflict of interest for advisers.

He said advisers can create much bigger conflicts with far worse possible outcomes without vertical integration.

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“You have a potential for conflict when the MDA operator and adviser are one and the same. However, you then need to analyse the individual situation to consider how serious the potential conflict of interest is, and this depends on the structure of the MDA,” Mr Ardino said.

“If, as is often the case, the MDA generates little or no income in itself and is simply being used for the adviser as an efficient structure to offer portfolio management, then I would contend that the potential for conflict of interest is low.”

Mr Ardino argued that where the MDA is put forward as a product in itself and there are significant fees, and/or the MDA operator can make more money by recommending investments, such as in-house managed funds that generate more income and/or brokerage, then the potential for conflict of interest is definitely higher.

He also said that it’s a mistake to treat all potential conflicts of interest as being the same, especially in terms of how important the use of the product or service is to the client outcome.

“The choice of platform, for example, will have a much smaller impact on the client outcome than factors such as the choice of managed fund, or insurance product,” Mr Ardino said.

“MDAs have served many clients well and, when used appropriately, are one of the more useful risk mitigation tools available to advisers. Critics need to ensure they have the full picture and better understand how specific MDAs are priced, structured and used by advisers.”