New MDA regulation to disrupt advisers
Advisers operating a managed discretionary account (MDA) service can expect some disruption when the corporate regulator announces changes to increase requirements on MDA operators and tackle key risks, according to a report.
Managed Accounts Holdings Limited subsidiary, managedaccounts.com.au's report, ‘The limited discretion clock is ticking', said some advisers were using MDA arrangements for retail investors despite not being authorised to provide MDA services under their licence.
However, the greatest impact of the changes would likely be the removal of a no action letter, which previously allowed certain MDA arrangements to continue on regulated platforms.
Advisers used this no action letter to provide MDA services, which allowed certain MDA investments to take place in regulated platforms if a licensee's financial services guide was changed and a contractual arrangement took place between the licensee and the client.
MGP chief executive, David Heather, said this would force advisers running limited MDAs to gain a MDA operator authorisation on their licence to continue their strategy.
"Forward-thinking advisers are already making changes to ensure their business processes are efficient, sustainable and compliant, and we've seen a recent increase in inquiries from advisory firms keen to understand how we can partner with them to build and implement a customised MDA service, ahead of ASIC's planned announcement," Heather said.
The report also said there was a lack of understanding of the rules around implementing retail superannuation arrangements that used MDAs, which risked advisers acting beyond their authority. Advisers must be appointed as an investment manager by the super fund's trustee.
"That means advisers currently managing retail super money under a limited MDA or MDA arrangement where they have not been appointed as an investment manager should be issuing a record of advice (ROA) for every portfolio change," Heather said.
Another option was for licensees to partner with a licensed MDA operator and administrator. A third option would be to run client portfolios through a separately managed account (SMA) structure but the report warned this had a number of disadvantages and would not suit advisers who wanted to tailor client portfolios, and use their discretion when rebalancing client portfolios.
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