A Managed Discretionary Account (MDA) is a facility by which:
- An investor makes contributions of funds or assets (or provides access to their funds or assets) which form the portfolio assets.
- The portfolio assets are managed on an individual basis by another person (MDA provider) at the MDA provider’s discretion. This means the MDA provider can buy and sell various financial products using the investor’s contributions.
- For the arrangement to be treated as an MDA, the MDA provider must have the discretion to make investments without prior reference to the investor for each transaction or trade. The MDA provider and investor intend that the investor’s portfolio assets will be used by the MDA provider to generate a financial return or benefit for the investor.
MDA services can go by different names, including SMAs (separately managed accounts), IMAs (individually managed accounts), IAPs (investment advisory programs) or MDPS (managed discretionary portfolio service). All these services may fall within the definition of a MDA and MDA providers will need to consider the structuring of their product to determine their licensing and disclosure requirements.
MDA providers must hold an AFSL to provide MDA services which include the following authorisations:
- Deal by issuing a financial product in respect of:
- interests in a managed investments scheme limited to MDA services;
- miscellaneous financial investment products limited to MDA services;
- deal in all the financial products that are acquired with the portfolio assets under the MDA contract (for example, derivatives, foreign exchange contracts, securities)
- provide personal advice to clients in relation to MDA services – where an external MDA adviser enters into a direct contract with the MDA client to provide advice about the investment program, this authorisation is not required by the MDA provider
- provide financial advice on all the financial products in which an investor’s portfolio assets may be invested – except where the MDA provider has engaged an external MDA adviser
- provide custodial or depository services in relation to the portfolio assets – where an external MDA custodian enters into a direct contract with the MDA client to provide the custodial or depository services, this authorisation is not required by the MDA provider
The no-action letter which previously allowed limited MDA services to be provided within regulated platforms has been revoked by ASIC and all licensees who provide limited MDA services must comply with the new regulatory requirements by 1 October 2018, including completing an application to vary their AFS licence to include an MDA specific deal by issuing authorisation.
Where the MDA provider meets certain requirements, ASIC offers a range of relief for MDA providers who offer services to retail clients including:
- Some disclosure and including the requirement to provide a PDS under Part 7.9 of the Corporations Act;
- The requirement to register the MDA in accordance with s601ED(5) of the Corporations Act; and
- The securities disclosure and related provisions in Part 6D.2 and 6D.3 of the Corporations Act for securities held on behalf of the investor under the MDA.
MDA providers must provide the following disclosure documents to investors:
- Financial Services Guide;
- MDA contract which includes an investment program;
- Statement of Advice (where required);
- Quarterly reports; and
- Annual investor statements.
Best Interests Duty
MDA providers are also required to act honestly and in the best interests of the investor when performing their duties in relation to the MDA service. This means that if there is a conflict between the investor’s interests and the MDA provider’s interests, the MDA provider must give priority to the investor’s interests. This duty is broader than the obligation for advisers providing personal advice to clients to act in their client’s best interests as it encompasses all activities undertaken in providing the MDA.
We can assist you with all aspects of establishing and operating your MDA services business. Please contact us for further information.