Radical changes to the regulation of managed discretionary accounts (MDA) being proposed by the Australian Securities and Investments Commission will result in major consolidation of the industry, according to director of managedaccounts.com.au Don Sharp.
Sharp, who co-founded managedaccounts.com.au and Bridges Financial Services in the 1990s, said the regulator’s proposal to make MDA operators hold net tangible assets of up to $5 million, contained in its Consultation Paper 200, would force many of Australia’s 160 MDA licence holders out of business.
“The 160-plus MDA licensees are likely to have difficulty complying and we could become a consolidator,” he said.
Managedaccounts.com.au recently changed its name from Investment Administration Services, raised $6.3 million of capital and flagged its intention to list on the Australian Securities Exchange.
The group will undertake a further capital raising. If the pre-initial public offering issue is fully subscribed, the business will have a market capitalisation of between $26 million and $29 million, with cash of between $5.5 million and $8.5 million and over $850,000 in funds under management.
It would compete more aggressively against the likes of HUB24 and Praemium.
“The new rules around capital adequacy being proposed by ASIC have created an opportunity because only a small percentage of MDA operators will be able to raise the capital required,” Sharp said.
The take-up of separately and individually managed accounts by Australian investors has been relatively low compared to investors in places like the United States, however Sharp predicted a surge in their popularity with investors increasingly dissatisfied with the structure of unit trusts.
“The investors we speak to tell us they find the unit trust structure cumbersome and frustrating because it isn’t tailored to account for their individual tax situations and needs,” he said.
“Furthermore, new inflows into unit trusts are weak because investors are increasingly using ETFs and direct shares. Managed-discretionary-account providers can formulate solutions that maximise tax efficiency and meet a client’s specific needs.”
