By Jayson Forrest - Managing Editor - IMAP Perspectives
Michael Mavromatis - Holley Nethercote
A Managed Discretionary Account (MDA) can be a complex structure to advise on, with many different components to navigate. Speaking at the IMAP Adviser Roadshow 2021, Michael Mavromatis (Holley Nethercote) provides three tips that advisers and MDA providers should consider.
There is the issue around conflicts that MDA providers need to be careful to address. They need to ensure that if there is a conflict between their interests and the client’s, then the client’s interests are always put before their own.”
1. Know your product, know your obligations
From a legal perspective, a Managed Discretionary Account (MDA) is a financial product. As such, financial advisers recommending clients to invest in an MDA, are recommending they invest in a financial product.
However, when advising on MDAs, Michael Mavromatis - Special Counsel at Holley Nethercote - cautions advisers to remember that not every MDA is the same. He says MDAs can take on many different forms, ranging from custodial to non-custodial, meaning advisers need to make sure they fully understand the differences between the MDAs they are advising on, before making any specific recommendations to clients in relation to this structure.
“You can’t compare apples and oranges, so you really need to know your MDA product,” says Michael.
And from a client perspective, while the Best Interests Duty is another important consideration for advisers in relation to advice, MDA providers are separately required to take the best interests of clients into account.
“There is the issue around conflicts that MDA providers need to be careful to address,” says Michael. “They need to ensure that if there is a conflict between their interests and the client’s, then the client’s interests are always put before their own.
“And that’s in addition to the MDA provider’s general obligations in relation to conflicts under the Corporations Act,” he says. “Because there are so many moving pieces to MDAs, you need to make sure that everyone is mindful of their role in that structure, and constantly check to see whether any conflicts are taking place and whether that needs to be managed.”
You need to work with key stakeholders who understand MDAs, and have strict governance frameworks in place - not only when it comes to changing product features, but also in relation to monitoring and supervision
2. Compliance
Compliance is another important aspect of MDAs - both for advisers and MDA providers - and is quite specific for this type of financial product. There are a range of requirements under the ASIC framework that must be complied with, including ensuring there is a compliance team in place that understands how the MDA structure works.
“Another key component of compliance is for MDA providers to have governance structures in place to ensure their product operates effectively and without any regulatory issues,” Michael says.
“Governance is very important. It’s not just about having a compliance checklist in your top drawer. You need to work with key stakeholders who understand MDAs, and have strict governance frameworks in place - not only when it comes to changing product features, but also in relation to monitoring and supervision.”
When it comes to monitoring and supervision, MDA providers have an obligation to supervise their agents and representatives, to make sure they are operating compliantly
3. Marketing and disclosure
When promoting an MDA, whether it’s via a website or an EDM to clients, advisers need to ensure that they’re not confusing their role within the MDA structure with anyone else’s role, like the MDA provider. And when reporting or disclosing past performance data, all relevant assumptions need to be in place and evident.
“When it comes to monitoring and supervision, MDA providers have an obligation to supervise their agents and representatives, to make sure they are operating compliantly.”
About
Michael Mavromatis is Special Counsel at Holley Nethercote.
He spoke in a session on ‘Why larger advice practices prefer MDA programs’ at the IMAP Adviser Roadshow 2021.
The session was moderated by IMAP Chair, Toby Potter.