The review of the managed discretionary account (MDA) sector being undertaken by the Australian Securities and Investments Commission (ASIC) is likely to result in a reduction of MDA operators — with only the largest able to survive under the proposed conditions.
ASIC released Consultation Paper 200 – Managed discretionary accounts: Update to RG 179 earlier this year. It has indicated it will require MDAs to have net tangible assets (NTA) of $10 million or 10 per cent of operating revenue with no maximum NTA.
Institute of Managed Account Providers (IMAP) chair Toby Potter said that if these changes were enacted they would be substantial and reshape the MDA sector.
"These proposals are consistent with changes being proposed to the responsible entity and investor-directed portfolio services regimes and would most likely be implemented. However they will substantially favour large institutions who can stump up this kind of money to operate an MDA," Potter said.
"It appears ASIC is not interested in independence or a variety of offerings and the outcome will be a reduction in choice for investors and financial planners."
Potter has also questioned the need for the review of the sector, saying IMAP was unaware of any significant failures within the MDA sector.
"We have just emerged from a financial crisis of Great Depression levels and MDAs have fared very well through that period, which would suggest there are not any structural problems with them," Potter said.
ASIC had indicated it would release the final version of the review of RG179 in October. Potter believes the changes will have the potential to hit financial planners who run their own MDA.
"ASIC has not distinguished between the MDA revenue and the whole revenue of an adviser which may be drawn from other unrelated advice business, which could be costly for advisers who wish to continue to operate an MDA," Potter said.
