MDAs must avoid bank-style non-disclosure

Advice firms that operate MDAs should be careful not to follow the banks’ example in disguising their vertically-integrated business model, says an industry lawyer.

Addressing delegates to the 17th annual Wraps, Platforms and Masterfunds Conference in the Hunter Valley, The Fold Legal managing director Claire Wivell Plater said the scope of services that MDA operators offer means they’re vertically integrated “just like a bank” and will need to disclose their business model to their clients.

“[MDA operators are] providing the advice, they’re arranging the administration, they’re arranging the custody, they’re arranging the investment modelling and advice, and they’re responsible for all of it, so you’ve got end-to-end vertical integration in a small advice business,” she said.

“That’s actually okay, but what they must not do is what the banks have always done and pretend that the whole thing is independent and at arm's length.”

Ms Wivell Plater said MDA operators need to move past the “hungover belief” that advisers need to be at arm’s length from the investments they recommend, cautioning that advisers can’t “provide an MDA service and deal with the best interest duty appropriately” without explaining the structure and benefits of the MDA service first.

“What, in my view, MDA providers should be doing is saying to the clients ‘if you come to us and ask us to give you advice and manage your investments, this is how we do it’,” she said.

“This is how we will manage your account, in other words you’ll be getting our MDA service because that’s what we do and it’s cheaper and better for you, if not, yes we can look after you but it’ll be a different service, and our preferred and our default option will be that you’ll be in our MDA service.”

MDAs must avoid bank-style non-disclosure
Managed accounts, managed discretionary accounts, MDA, SMA, Separately managed accounts, Claire Wivell Plater, The Fold Legal, Wraps Platforms and Masterfunds, financial advice, financial adviser
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