MDA winners: Independents or institutions?

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Ian Bailey from Bailey Roberts Group has been in the MDA space for five years. According to Bailey, advisers have a great opportunity in this sector to meet their clients’ need for direct investment, but small firms will miss out if the proposed regulations are made law.

“If you make it that the entry to running an MDA means you have to have high net worth tangible assets – and I cannot work out what tangible assets have got to do with your ability to run an MDA – then that means you’re going to eliminate all the independent advisers or small advisers out there that don’t have the scale that we have,” says Bailey.

If that had been the case when he started out, Bailey says his firm never would have done it, and people wouldn’t have the opportunity to use the Pluto application that they developed.

The benefits that advisers can get from running an MDA service are profound, according to Bailey. His staff has dropped 50% through efficiency, and all of their client money is spent with them.

“It’s great from a FOFA process in the sense that my clients pay me as an investment manager, because I actively invest their money 24/7. And that the clients really like, because they can see the value proposition and our value proposition is about 50% less than the marketplace.”

He says direct investing isn’t about picking an index and hoping it goes up 30%, it’s about investors buying a business they feel good about owning. Direct investing also has tax benefits for investors as they don’t have to wait until the end of the financial year like they do in managed accounts.

However, while Bailey says it is the independent firms that will miss out with these new regulations, Tim Wedd from Crystal Wealth says smaller firms are likely to dominate the market, as they look to service the high net worth clients that it targets.

"The one that will have more impact on larger groups is changing the requirements around wrap accounts and the no-action letter about providing limited power of attorney arrangements under a wrap account – the fact that someone might have to be licensed to do any sort of discretionary arrangements – will be of impact," says Wedd.

He says that MDA operating is not something that you decide to do on an ad-hoc bases and by increasing the capital requirements it is likely to become a specialist offering.

Both men agree that ASIC needs to understand the different types of MDA models in the market and therefore associate different levels of risk to each.

  • Pat on 14/05/2013 8:52:50 AM

    Yep, I think the concept of an adviser, who has to stay on top of competencies in super, tax, general planning, insurance and investing plus look after their clients, being the right person to try to pick stocks is great. That would never fail.

    I used to work with an "adviser" who thought he was a great stock picker. About 90% of his discussions with clients was about the stocks in the portfolio, 8% about the other active funds and maybe 7% on other issues such as the client's objectives.

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