ASIC has issued Regulatory Guide 179 Managed discretionary accounts setting out how it will regulate managed discretionary account (MDA) services provided to retail clients under the Corporations Act 2001.
The guide sets out ASIC’s main policy in regulating MDA services and the relief it has given to MDA providers from some of the managed investment scheme, fundraising and financial product disclosure requirements in the Corporations Act.
An MDA means a facility, other than a registered managed investment scheme or an interest in a registered scheme, with the following features:
(a) a person (MDA client) makes contributions;
(b) the client portfolio assets are managed on an individual basis by another person (MDA provider) at the MDA provider’s discretion, subject to any agreed limitation; and
(c) the client and the MDA provider intend that the MDA provider will use the client portfolio assets to generate a financial return or other benefit for the client.
ASIC acknowledges that industry uses different terminology to refer to services that may have the relevant features of an MDA. For example, products commonly known by industry and investors as a separately managed account, individually managed account, investment advisory program or a managed discretionary portfolio service may fall within the definition of an MDA.
ASIC requires:
(a) adequate disclosure about MDAs, including an investment program that is prepared in accordance with the Corporations Act requirements for preparing a Statement of Advice (SOA);
(b) reliable investor reporting;
(c) effective compliance controls;
(d) custodial and transactional integrity; and
(e) appropriate and compliant personal advice about MDAs.
The guide does not apply to:
(a) other types of managed investment schemes, such as investor-directed portfolio services (IDPSs) and IDPS-like schemes; and
(b) MDA services offered only to wholesale clients, other than wholesale clients that are acting under a custodial arrangement.
An MDA is generally both a managed investment scheme and a facility for making a financial investment under the definitions in the Corporations Act. ASIC regulates an interest in an MDA as a financial product.
ASIC also recognises that MDAs also involve a range of functions and services, such as offering and trading in financial products, operating a custodial or depository service, and giving personal advice.
As a transitional measure, MDAs can continue to provide existing MDA services under existing relief until 1 October 2017.
A new MDA provider with an MDA specific AFS licence authorisation to deal or provide financial product advice in relation to an MDA issued on or after 1 October 2016, must comply with the requirements in ASIC Corporations (Managed Discretionary Account Services) Instrument 2016/968.
From 1 October 2018, MDA providers who hold a limited power of attorney that is valid only within a regulated platform and is limited to authorising the MDA provider to transfer funds between investments offered through the regulated platform, but not to contribute or withdraw funds and who currently hold a no-action letter from ASIC must hold an AFS licence authorisation to deal by issuing a financial product in respect of interests in managed investment schemes limited to MDA services or miscellaneous financial investment products limited to MDA services, and other authorisations for dealing in the financial products covered by the regulated platform to which the MDA relates.
