While the use and marketing of managed discretionary accounts (MDA) are rapidly increasing they are not for everyone and advisers and licensees need to make a considered decision when using them, according to Xplore Wealth.
Xplore Wealth chief executive, Mike Wright, said when deciding whether to use managed accounts financial advisers needed to find one that was in their client’s best interests by offering the right product at the right time.
Wright said it was important to remember not every client is the same under every Australian Financial Services Licence (AFSL).
“They’re all going to have different circumstances and stages in their life so advisers need an offer that allows them to flex between offers depending on the circumstances of their clients. This would also assist in defending in best interests,” Wright said.
“Advisers would be able to articulate why it is the right offer for their client and why it makes sense and how that’s going to support their client’s needs moving forward.”
Wright said using MDAs was a significant strategic decision for advisers and licensees and that they needed to figure out if it was the right solution and model for their clientele.
“The licensee also needs to put infrastructure around an, ideally, independent investment management committee, and governance and policy procedures, to make sure they are adhering to their intent and meeting their obligations to the regulator and to the law,” he said.
“It’s not an easy decision and it should be a very considered and deliberate decision.
“While there are significant benefits for the client, adviser, and licensee when using MDAs, it’s not for everyone and not for every advice business.”
Wright noted there was a lot of misconceptions around the classification of an MDA and a separately managed account (SMA) that needed to be addressed.
“An SMA is in essence a product that has beneficially ownership that is tied to the client and it’s done at a portfolio level. An MDA is an individual proposition and in essence a service which is bespoke to that individual,” he said.
“There’s a lot of debate in the industry around classifying an MDA as a product and I don’t consider it a product. It’s a service that has a contract with an individual for that proposition whereas an SMA is a product.”
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