Another blow for institutional use of Managed Discretionary Accounts (MDA) this week as AMP forfeits its ability to offer MDA’s through their adviser network, as they were unable to meet ASIC’s increasing requirements.
ASIC has been on a warpath for MDA providers for a couple of years now (here and here) as it continues to tighten the screws on investment structures that allow investment managers (usually aligned to the recommending adviser) broad discretion over retail investors capital. They also featured in the recent Banking Royal Commission as an area of concern.
Whilst, in theory, this is not alarming, typically investment managers give themselves wide mandates that may encompass colourful potential investments like Contracts for Difference, Options, Warrants and high commission paying Listed Investment Company floats that introduce risk (and bonus revenue!) without authorisation by the client. It is not surprising it is a focus for the regulator.
An alternative, whilst still part of the MDA family, is the Separately Managed Account (SMA). The primary difference here is that SMA’s are usually implemented on an external platform which subjects the palette of potential investments to the scrutiny of both the platform investment committee and often third-party trustee oversight. Effectively this precludes them from being run by salespeople rather than professional managers.
SMA’s give confidence to investors that this level of oversight ensures that investment mandates (such as diversification and asset class limits) are upheld. When the investment methodology is reviewed and approved by a team of external investment professionals, it makes it easier to trust hard-earned savings are being invested properly and in your interests. This is exactly why we chose to use it for our portfolios.
AMP have blamed falling use and increasing compliance costs for the decision, and the industry is no doubt watching closely to see who else feels the same way.
Tim Fuller is Head of Operations at the Nucleus Wealth.
The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance. Tim Fuller is an authorised representative of Nucleus Wealth Management, a Corporate Authorised Representative of Nucleus Advice Pty Ltd – AFSL 515796.