What is a managed discretionary account?

A managed discretionary account (MDA) is a facility – other than a registered managed investment scheme (registered scheme) or an interest in a registered scheme – in which an MDA client entrusts management of their portfolio of assets to an MDA provider.

The MDA client makes contributions; subject to any agreed limitations, at their discretion the MDA provider manages the client’s assets on an individual basis. The expectation of both parties is that the MDA provider will intend to use the client’s portfolio of assets to generate a financial return or other benefit for the client.

MDAs are distinguishable from managed funds in that the client’s assets are not unitised or pooled investments. As the individual beneficial owner of all portfolio assets, a valuable characteristic is that the client has better visibility of the investments they hold; and in the case of Individually Managed Accounts, greater say over their investment preferences.

ASIC regulates an interest in an MDA as a financial product. Therefore, providers of managed discretionary account services may have similar licensing, conduct and disclosure requirements to other entities that deal in various financial products. 

Recent changes to MDA licensing

The 29 September 2016 edition of RG 179 Managed discretionary accounts updated guidance on how ASIC approaches regulation of MDA services provided to retail clients.

Unless the MDA service provider utilises the services of an external MDA adviser or is a Market Participant providing an MDA to a family member only, most MDA providers had to obtain an Australian Financial Services Licence to provide their service by 1 October 2017. Their licence must also include authorisations to deal in all the financial products acquired and traded within the client’s portfolio.

Additionally, there was an exemption for providers of MDAs under a limited power of attorney that was valid only within a regulated platform. This power was limited to authorising the MDA provider to transfer funds between investments offered through the regulated platform (but not to contribute or withdraw funds). Because this exemption expired on 30 September 2018, since 1 October 2018 such MDA providers have also needed to be licensed.

How can FEP assist?

  • RG 146 compliance in individual knowledge areas, such as securities, derivatives, managed investments, foreign exchange and margin lending

    Due to the new adviser education standards being imposed by FASEA, advisers were encouraged to have gained RG146 compliance and be recorded on the Financial Adviser Register (FAR) prior to or by 1 January 2019. This allowed advisers to be eligible for more favourable transition conditions. New advisers are now subject to more onerous education standards.

    Existing advisers who were recorded on the Financial Advisers Register (FAR) by 1 January 2019 and are therefore recognised by FASEA as an ‘existing provider’ can continue to study and add additional RG146 specialist knowledge areas to their credentials. However, they will need to keep in mind dates for important milestones that must eventually be met.

    For further information regarding FASEA requirements, you can refer to our dedicated Professional standards for financial advisers page.


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