However, it is drafted in absolute terms, Mr Carrodus said, stating that advisers “must not advise, refer or act in any other manner where [they] have a conflict of interest or duty”.

“The majority of managed accounts are white-labelled by, or associated with, financial advice licensees. This means they are in-house products, because advisers who recommend them to clients will generally receive a direct or indirect benefit. This creates a conflict of interest,” he explained.

Despite the potential conflict, he noted that managed accounts can benefit clients in several ways by offering an investment account managed on a discretionary basis by a professional investment manager, transparency over the assets they hold, assets held in their own name and a portfolio that can be rebalanced without requiring a statement of advice or record of advice every time.

“ASIC Regulatory Guide 181 ‘Managing Conflicts of Interest’ states that adequate conflict management arrangements help to minimise the potential impact on clients,” he said.

“It clearly indicates that not all conflicts need to be avoided, and it lays out three mechanisms for managing them [including] controlling the conflict, disclosing the conflict and avoiding the conflict.”

Depending on the circumstances, financial services providers, he said, will generally use a combination of all the three mechanisms.

Mr Carrodus stated that it’s possible that FASEA may actually be in broad agreement with ASIC and the Corporations Act without realising it.

“In consultation sessions last year, FASEA stressed that Standard 3 only prohibits advisers acting in the face of actual conflicts. This means that it doesn’t apply to potential or perceived conflicts. The rationale is that by managing a potential conflict so that it does not influence your advice, you ensure that it does not become an actual conflict,” he said.

“FASEA’s guidance also puts forward a ‘disinterested person test’ — would a disinterested person reasonably conclude that the potential conflict could induce the adviser to act other than in the client’s best interests? An arrangement that passes this test should be permitted, irrespective of the form and features of the arrangement.”

However, the Code of Ethics doesn’t contain specific language or qualification around this, which leaves some uncertainty, he warned.

Financial advisers should still be able to recommend managed accounts based on the current law, guidance and the code, he said, provided they follow a robust advice process.

This might start with identifying the client’s needs and objectives and asking questions to draw out the client’s preferences and priorities.

“Find out which product features and benefits (if any) are important to them,” he suggested.

Advisers should also research investment solutions that are capable of satisfying the client’s needs, objectives and preferences, and learn about the benefits, risks and costs of each option, he said.

“Investigate the client’s existing investment solution and conduct a detailed comparison of that solution compared to the managed account,” he added.

“Benchmark the fees and costs of the managed account you’re considering against the broader market. This is to ensure that the fees and costs are reasonable and represent value for money for the client.”

It is also important that advisers tailor advice to the client’s circumstances and link each recommendation back to the client’s needs, objectives and preferences, he said.

“Explain how the managed account satisfies the client’s needs and objectives and why it’s likely to leave the client in a better position, and take steps to ensure the client understands the benefits, costs and risks of your recommendation,” he stated.

“We expect that advisers who recommend related-party managed accounts will attract more regulatory scrutiny in the future. But Standard 3 isn’t a death knell for managed accounts. There will always be a place for advice and investment solutions that are appropriate and in the client’s best interests.”