Watchdog gets pat on the head

Now that the dust has settled on ASIC’s long awaited master trust and wraps pol-icy, most in the industry are enthusiastic about its implementation.

Now that the dust has settled on ASIC’s long awaited master trust and wraps pol-icy, most in the industry are enthusiastic about its implementation.

Following the policy’s release in January, master trusts and wraps are now treated as services. This means that, rather than being administered by the managed in-vestments component of the Corporations Law, these services (termed investor di-rected portfolio services by the watchdog) now come under securities licensing re-gime.

Apart from this, there are five major components to the policy. All operators of master trusts and wraps now have to have a securities dealers licence. All investors in these services will receive prospectuses and quarterly statements. As part of the new policy, communication between clients and master trust/wrap service opera-tors will be able to be done electronically.

And finally, ASIC has given current operators a 13 month period within which to comply with the new policy.

Most of the master trust/wrap operators Money Management spoke to have no complaints about the overall direction of the policy.

Chief legal counsel for the BT Group Geoff Lloyd says he was happy with the final result. BT Portfolio Services is one of the biggest providers of badged wrap serv-ices to advisory groups.

“I think the current relief is a good result,” he says.

His view is mostly shared by the largest master trust in Australia, Asgard. Chief executive officer of Asgard’s holding company Sealcorp, Ian Knox, recently told Money Management he was a “strong supporter of a level playing field” across this segment of the financial services industry. He also said he believed the new policy would help to “demystify” these services among consumers.

However, he did harbour certain reservations regarding the requirement for quar-terly reporting, claiming this would lead to an increase in costs for the operators of master trusts and wraps.

In fact, the issue of cost was the only sore point for some.

When the final policy was first released, law firm Freehill Hollingdale & Page claimed the end result could mean a hike in management expense ratios (MERs) for these services.

At the time, Freehill’s financial services partner Luke Gannon said this would be a result of information memorandums being replaced by the requirement for opera-tors to provide full prospectuses to clients.

“Will the MERs rise to soak up the costs? Alternatively, some operators will look closely at fee arrangements. One way or another, management fees will rise. The question is, who will wear it?”

BT’s Lloyd does not see increased costs as a result of the policy. In fact, he sees the policy as having the opposite effect for BT.

“It will assist us to keep costs down and maintain the competitiveness of wraps as opposed to master funds,” he says.

Lloyd argues the requirement for full prospectuses will be replaced by short form prospectuses (as outlined in the recently released Financial Services Reform Bill) before the end of the 13 month compliance deadline. Provided these short form prospectuses complied with “one industry standard”, costs do not need to soar, he says.

Even if there is an increase in costs, they would not be passed onto advisers and consumers, he argues.

“Those costs are generally worn by the management company.”