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When high conviction is the only option

In property, it's all about location. In managed accounts, it's all about conviction. High conviction, to be more precise.

Our top story on Financial Standard yesterday was about a start-up super fund called Spaceship that found itself at the receiving end of ASIC's punitive action. In dollar terms, it was more puny than punitive: only $12,600. But the penalty was a stern warning to any superannuation fund (and their trustee) that dares to mislead consumers about what their super fund invests in - they will be caught out.

ASIC said that last year, the fund and its trustee Tidswell Financial Services made promotional statements that prioritised marketing over accurate disclosure. Spaceship told members through its website that it will find the best assets and 'measure companies' when, in fact, 79% of the underlying portfolio was invested in index-tracking funds (See the released statement from ASIC here).

This story seems far removed from the world of managed accounts except when you think about it, the industry and the superannuation industry are both riding on two megatrends:  the rise of new players entering their respective sectors and regulators tightening their grip (the Royal Commission inquiry in wealth management and APRA reforms in superannuation).

More importantly, it raises the question about being true-to-label. The purist form of managed accounts, arguably, is when they are made up of direct equities. Today, many invests in direct equities, ETFs and managed funds. At what point does this re-invention take away from the perceived benefits of lower costs, transparency, flexibility and liquidity? From the regulator's perspective, the industry needs to prioritise accurate disclosure over marketing, not the other way around.

With $57 billion in FUM, managed accounts are on the rise but as the saying goes, it takes decades to build a good reputation and only seconds to destroy it. One 'bad apple' could undo the work of so many.

Investors are calling for high conviction. High conviction on investment selection and high conviction on governance. Managed account providers must heed their call.

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