Following on from the first part of our Thought Leaders series, “Building a better business model for financial advice,” we spoke to Luke Fitzgerald, Mercer's Wealth Management Leader in the Pacific Market, about what advisers can do now that the era of limited managed discretionary accounts is coming to an end. See him in action in our exclusive interview.
Broadly speaking, what can advisers do if they’ve been relying on limited MDA authorisation from their licensee?
Basically, you can buy a managed account off the shelf, partner to build one or build your own. Obviously, your other option is to go back to the world of SOAs. Which, as you know, brings with it an elevated operational undertaking if you’ve been working with clients under an LMDA structure up until now.
Do you see the future of advice involving more digital connectivity?
In a digitally connected world, investors and their advisers should be able to connect in more sophisticated ways. Investors should be able to log into an app and receive and accept your advice; in an ideal world, you wouldn’t be trading paper and signatures. We need to be looking more towards those kinds of processes.
Do you think using LMDAs was part of that?
Well, as we said in the discussion, an MDA licence really comes with more discretionary power than most advisers require. An adviser should be able to rebalance within parameters; I acknowledge there are multiple ways for advisers to do that now. I am concerned that advisers need to be able to protect the capital of an increasingly retired client base from extreme market events no matter if they are just down the road or off yak riding in outer Mongolia - that’s what “limited discretion” is all about.
Do you think these issues highlight a growing interest in the managed account space?
Well, I think any discussion - and we’re well outside the LMDA space now - has to start with the client’s best interest. But beyond that, it’s hard for an adviser or licensee to tidy up their back book, tax consequences and so on. It’s a shift - it can be an absolute rigmarole. But that’s why we in the industry need to work together with advisers and the regulator to work out the best way to “tidy up,” so to speak.
Managed accounts began in the broker world, but they’re now seen by some as a practice management solution for financial advice businesses. Do you agree with that?
Absolutely. A lot of these advisers aren’t using it as an investment solution, per se; but more a portfolio management solution where . They’re out there focusing on strategic advice, risk advice, estate planning and MA’s provide an more elegant solution when they can rotate in and out of managers and asset classes in line with the ebb and flow of markets across the totality of client base exposure. .
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