MDA provider responds to imminent ASIC regulations

In a statement yesterday, MGP released its report titled The limited discretion clock is ticking, which details the impact of proposed changes to be announced by ASIC this month including the potential removal of a no action letter - used by some advisers to run discretionary portfolios on regulated platforms under a limited MDA arrangement.

MGP chief executive David Heather said the potential removal of the no action letter will force advisers operating limited MDAs to gain an MDA operator authorisation on their licence or work with an existing managed account provider.

“The interesting question will be whether their ‘experience’ running a limited MDA arrangement will be acknowledged by the regulator. If not a number of advisers will have to find an alternative solution,” the report said.

Adding further complexity, ASIC has also flagged plans to increase the capital requirements for MDA operators so that net tangible assets (NTA) of 0.5 per cent of funds under administration up to $5 million will need to be maintained, MGP said.

Smaller advisory firms endeavouring to obtain a MDA operator authorisation or those who already have an MDA operator authorisation will need to seriously consider their ability and willingness to meet new capital requirements. The majority will struggle to meet the proposed NTA requirement, MGP said.

The report also identified a poor understanding among advisers of the rules around implementing retail super arrangements that use a managed account approach, potentially leading to advisers unknowingly acting beyond their authority.

“In order for advisers to manage retail super money with discretion, they need to be appointed as an investment manager by the super fund’s trustee.

“That means advisers currently managing retail super money under a limited MDA or MDA arrangement where they have not be appointed as an investment manager should be issuing a record of advice (RoA) for every portfolio change,” MGP warned.

"Even if ASIC removes the no action letter, there will be life after limited MDAs," MGP said.

“Forward-thinking advisers are already making changes to ensure their business processes are efficient, sustainable and compliant, and we’ve seen a recent increase in inquiries from advisory firms keen to understand how we can partner with them ahead of ASIC’s planned announcement,” the firm said.