Time is running out for advice businesses providing limited managed discretionary account (MDA) services - are you and your clients prepared?
Up until October 1 this year, advisers have been able to move client funds between investments on a discretionary basis provided the adviser held a limited power of attorney which was restricted to operating the limited MDA service within a regulated platform. Under this arrangement, advisers could only transfer funds between investments offered by the platform; they could not contribute or withdraw funds.
Back in late 2016, though, ASIC announced it would remove the "no-action” letter which enabled this. The deadline for businesses to adjust to this change is October 1, so if you haven't moved towards addressing the issue there's a very narrow window left.
So, what’s involved?
Varying your licence
Crucially, advisers providing limited MDA services – that is, operating without full MDA authorisation – will need to vary their licence so they are authorised to manage interests in managed investment schemes limited to MDA services or; miscellaneous products limited to MDA services; and other authorisations for dealing in the financial products covered by the regulated platform to which the MDA relates.
Fortunately, previous experience operating within the limited MDA framework will be counted towards the RG105 experience requirements.
Advisers will need to provide documentation of their MDA procedures, and will also need to provide additional disclosures in financial services guides, investment programs and MDA contracts.
Specifically, FSGs will require the MDA service's fees and costs, disclosures about outsourcing arrangements, risk of non-limited recourse products and external MDA advisers' names and contact details. The contract will the same fees and costs disclosure, explanation of the differences between acquiring products directly versus through the MDA service and how the contract can be terminated (and how long this will take).
The investment program will also need to be detailed enough to help the client decide whether it is suitable for them.
ASIC has explained that “the obligation in our relief to act in the best interests of the client in performing your duties in relation to the MDA” is an additional obligation to what already exists for advisers providing personal advice to retail clients to “act in the client’s best interests in relation to the provision of personal advice.”
To explain, ASIC highlighted an example where a retail client had a long-term investment focus with an inclination towards blue-chip Australian shares paying out fully-franked dividends.
The regulator would consider trading in the MDA excessive or inappropriate if, say, the shares are in the ASX 100; significant amount of shares are sold within 30 days of purchase and fully-franked dividends are not received; or the brokerage, commission or management fees earned by the provider are high "when expressed as a percentage of the change in value of the MDA portfolio for the period."
ASIC has indicated the timeframe for varying a licence in this regard may take up to eight months (or even a year), so it may be too late at this stage to undertake a comprehensive variation of your licence. However, there are other pathways to explore when it comes to transitioning clients out of the limited MDA regime, and we will discuss these in depth in the coming weeks.
If you any further questions, we suggest contacting Lisa McCallum at OneVue, Annick Donat at Madison Financial Group, Luke Fitzgerald at Mercer or Adrian Rowley at Watershed Funds Management.
The opinions expressed in this content are those of the author shown, and do not necessarily represent those of No More Practice Education Pty Ltd or its related entities. All content is intended for a professional financial adviser audience only and does not constitute financial advice. To view our full terms and conditions, click here.
28 September, 2018
Here’s how the regulator is planning to approve and oversee compliance schemes.
28 September, 2018
What are your options?
25 September, 2018
Here's what it means for the sector.