MDAs: Are you qualified to manage them?

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Managed discretionary accounts (MDAs) are becoming increasingly popular, with Tria investment partners saying 25% of MDA licensees are relatively new to the game. This has drawn the attention of ASIC, which released a consultation paper (CP200) in March.

Tria managing partner Andrew Baker says the paper has caused a stir in the sector, and that this is a good sign.

“MDAs give the operator a lot of power, and there are concerns that some are not well qualified to take on this responsibility,” says Baker. “It’s a lot harder than it looks to do well.”

Baker says the growth in the sector, combined with advances in technology, could create a new breed of financial planner as a fund manager. “Not in a complete sense of course, but certainly in terms of some of the key aspects, including making the investment decisions and collecting the associated management income.”

In CP200, ASIC is recognising this change in role, formalising it, and forcing MDA operators to take on regulatory requirements which typically apply to fund managers.  There are a range of measures:

  • Introducing NTA requirements which start at $150,000, and go to $5m, or $10m if providing retail custody services
  • Removing the no action letters which allow a “shadow MDA” industry
  • Prohibiting investments such as CFDs which are not limited recourse
  • Applying FoFA concepts such as best interests to the MDA environment

Baker says that if regulation is anything to go by, the MDA industry will eventually become dominated by those already satisfying the new requirements – ie fund managers, and especially vertically integrated groups which own both platforms and distribution. 

“It has been too small an opportunity in the past to merit much effort. But that’s changing – important segments (eg SMSFs) have shown a preference for direct asset ownership, and technology is making this easier and more economical for the industry to deliver in scale.”