Advisers told to strike now on limited MDAs

Advisers have been encouraged to incorporate limited managed discretionary accounts (MDAs) into their suite of services before the corporate regulator tightens the platforms’ requirements.  

With the Australian Security and Investments Commission’s (ASIC’s) plans to change limited MDA regulations temporarily on hold, advisers should consider how they would benefit from offering limited MDAs, according to financial services lawyer and managing director of The Fold, Claire Wivell Plater.   

Last year ASIC signaled plans to change the laws around limited MDAs, including the provision that allows users to operate on the platforms without a specific limited MDA authorisation.  

Under the proposals, limited MDA operators would also have to hold minimum net tangible assets (NTA) of either $150,000, 10 per cent of MDA operator revenue or 0.5 per cent of the value of MDA assets managed (with a ceiling of $5 million NTA), whichever is greater.  

“ASIC has made it clear that it’s worried about MDAs, because of the potential for fraud and over-trading,” Wivell Plater said.   

She said while there was no guarantee when ASIC would act on its plans, it was likely businesses offering the investment and advice components of limited MDAs could “comfortably” continue operations until 2014, when the Class Order (and No Action Letter) may lapse. 

Unlike full MDAs, the limited counterparts are offered through a platform, which handles administration, custody and reporting. 

“There is no need to obtain a client’s consent in advance to simply rebalance a portfolio. Provided advisers can operate them efficiently, MDA services can be an excellent way for advisers to add value.” 

However, Wivell Plater warned advisers to adopt a fallback position just in case the current arrangements came to “an abrupt halt”.