SMARS 1.2.1: A New Standard for Transparency and Professionalism for SMAs

The Separately Managed Accounts (SMA) Reporting Standard 1.2.1 (SMARS) establishes a uniform framework for disclosing fees associated with SMAs.

Historically, fee disclosures varied significantly among Responsible Entities, making comparisons difficult and potentially misleading. SMARS introduces mandatory reporting fields to improve transparency, comparability, and consistency across the financial services industry.

It’s fascinating development for many reasons. The Standard can be accessed through the link above but here are the key points.

Highlights

• Standardised Fee Reporting – The Standard mandates uniform disclosure of investment and portfolio fees, ensuring transparency across all SMA structures. This standardisation eliminates discrepancies in how fees are presented, making it easier for investors and advisers to assess and compare costs effectively.
• Clear Fee Categorisation – The Standard differentiates between management, performance, and transaction costs, providing clarity on the nature of fees charged. This structured approach ensures that investors understand exactly what they are paying for, reducing confusion and promoting better financial decision-making.
• Alignment with ASIC RG97 – It ensures consistency with Regulatory Guide 97 (RG97) fee disclosure requirements, reinforcing compliance with established regulatory frameworks. By adhering to RG97, industry participants can mitigate the risk of regulatory penalties and enhance investor confidence.
• SMA Manager Accountability – Critically, it shifts reporting responsibility from Responsible Entities to SMA Managers, ensuring that the entities with the most direct control over investment management take responsibility for accurate and consistent fee reporting. This reduces discrepancies across platforms and enhances overall industry reliability. Additionally, SMA Managers must disclose asset allocation using predefined categories: Actual, Dynamic, Strategic, or Tactical, in a structured key/value format. This standardisation ensures uniformity in asset classification, improving comparability and transparency across platforms.

Clarification of Key Terms

• Separately Managed Account (SMA): A registered investment scheme managed by an Investment Manager.
• SMA Manager: The entity responsible for executing investment strategies and portfolio rebalancing.
• Responsible Entity: The legal operator of the SMA, which may vary across platforms.
• Platform: The investment structure facilitating SMA investments.
• RG97: ASIC’s Regulatory Guide 97, which governs disclosure of fees and costs.
• Product Disclosure Statement (PDS): A document providing essential investment product details, as required by RG168.

The Benefits of Meeting the Standard

• Actual Comparability – Standardised reporting enables advisers to compare SMAs across platforms with greater accuracy, ensuring that investment choices are based on consistent, reliable data. With clearer disclosures, advisers can conduct in-depth analysis of fees and performance metrics, strengthening their due diligence process.
• Efficiency Gains – Eliminating inconsistencies in fee structures and reporting formats, should reduce the time advisers and licensees spend on product research and administrative reconciliation. This allows for greater focus on client engagement, portfolio management, and strategic financial planning.
• Improved Client Conversations – Clearer and more consistent fee disclosures should help advisers communicate investment costs more effectively to clients. Disclosure may be over-rated but transparency builds trust, improves client confidence in investment choices, and enhances consumer outcomes.
• Regulatory Protection – Industry-led standards like SMARS ensure alignment with regulatory expectations, reducing the risk of non-compliance. By voluntarily adopting the Standard, advisers and Licensees demonstrate their willingess to actively, and proactively, address issues before regulatory intervention.
• Consumer Benefits – Investors gain greater clarity on costs associated with SMAs, enabling more informed decision-making. Standardised reporting allows for easier comparison between investment options, fostering a more competitive and transparent marketplace.
• Industry Advancement – SMARS represents a proactive step in resolving long-standing inconsistencies in SMA fee disclosures in advance (or anticipation) of regulatory intervention. It’s an initiative that strengthens the integrity of the financial services industry while maintaining flexibility in implementation.
• Reputation and Trust – By improving clarity and comparability in fee disclosures, SMARS enhances industry professionalism by setting a higher standard of accountability and precision. Financial advisers, platforms, and SMA Managers who adopt and endorse these standards not only demonstrate compliance but also actively reinforce their credibility and commitment to best practices. A clear, consistent reporting framework signals to clients, regulators, and the broader financial community that these industry participants operate with integrity, prioritising transparency and investor confidence. This may also translate into a competitive advantage, allowing advice professionals who embrace the Standard from those who do not.

Adoption and Implementation

SMARS 1.2.1 is a critical step towards greater transparency and standardisation in SMA fee reporting. By aligning fee disclosures with RG97, the standard enhances investor protection, improves comparability across platforms, and strengthens market integrity. Industry participants should adopt these requirements proactively to ensure compliance, foster trust, and support informed investment decisions.

Assured Support offers comprehensive services to assist SMA Managers and financial advisers in navigating the complexities of SMARS compliance. Our expertise in Financial Services Compliance, Risk Management, and Regulatory Support ensures that your organisation can seamlessly adapt to these new standards. Contact us today to learn how we can support your compliance journey and enhance your operational efficiency.

Click here to access the Standard.