Peter Turbach from MDA Guru, shares his domain expertise and addresses 10 key questions.
1. Do you feel there is still a little uncertainty out there around advisers' requirements when providing MDAs to their clients?
Yes, because there are a number of conditions that must be complied with to operate a managed discretionary account (MDA). This is in addition to meeting the best interest and other requirements that must be met when advising clients.
I find the ongoing client suitability review which is required annually the main issue. This is what separates MDAs, which is a service, from Separately Managed Accounts (SMAs) which generally are a product. Advisers need to realise that an MDA is a contract between them and their client and often with other outsourced parties involved.
Advisers are obligated to ensure the investment program remains suitable on an ongoing basis. I'd also suggest that there is still a degree of confusion about the types of managed accounts and their specific characteristics and advantages. Education is the best remedy for uncertainty.
2. Do MDAs benefit the adviser more than the client?
MDAs provide a number of benefits for both clients and advisers but it may not be the right option for everyone as there are conditions. Certainly, the adviser can gain service efficiencies and these can be passed on to the client as better service or reduced costs.
With regards to service, the client can benefit by the adviser being able to act upon their investment decision in a timely manner, for example to benefit from a particular buy or sell price.
This can especially benefit retirees when they are travelling and hard to get hold of, or for those clients that do not wish to be heavily involved in individual stock selection decisions.