Many advisers and their clients are likely to be affected by proposed changes to the operation of managed discretionary accounts (MDAs) to be announced by the Australian Securities and Investments Commission this month.
The biggest change being flagged is the removal of a ‘no action letter’, which some advisers have used as a basis to run discretionary portfolios on regulated platforms, under what’s commonly referred to as a limited MDA arrangement.
If that occurs, as is largely anticipated, advisers using a limited MDA approach will likely be forced to gain specific MDA authorisation on their licence to continue their current approach. Alternatively, they’ll need to work with an existing managed account provider to implement an arrangement that meets their requirements.
Whatever changes are announced and regardless of whether the industry agrees or not, every participant will need to comply with the new rules.
Forward-thinking advisers are already making changes to their advice and portfolio management processes in preparation for incoming changes. Some are thinking even further ahead and future-proofing their practices by implementing systems to maximise efficiency, productivity and profitability.
In the future, discretion will be the factor that separates great advisory firms from good firms.
Discretion the better part of value
Advisory firms which have the authority to manage money with discretion and the technology, processes and governance structures to manage client portfolios in an efficient and scalable way across non-super, SMSF and retail super client-bases will have the edge over firms that are still trying to manage portfolios on a non-discretionary, client-by client basis.
Discretion has the power to transform an advisory firm’s back office by eliminating the need to produce Records of Advice (RoAs) for every portfolio change. It has the power to deliver improved portfolio outcomes by allowing advisers to quickly implement investment ideas and corporate actions according to a robust, documented investment strategy that is agreed with the client and monitored with independent input.
In the front office, it has the power to change the nature of advice.
Rather than spend time communicating every portfolio change and following up client RoA approvals, advisers can focus on high level strategic advice. Advice conversations can focus on more critical matters such as how clients are tracking towards their goals and objectives.
And because reporting and portfolio administration are integrated into the MDA structure, investors can see their portfolio holdings and weightings, and monitor their performance online.
One approach to rule them all
But in order for advisory firms to achieve all that, they need one standard, repeatable approach to portfolio management, and importantly, the governance structures to be appointed to manage client portfolios under any legal structure.
Although the advisory firms that partner with managedaccounts.com.au to deliver a customised MDA service have a different style and approach to portfolio management, each firm has a consistent client experience and the same high level of service across their client base. This same portfolio management approach and consistent client experience is now being applied into retail super services which are being implemented by a number of advisory firms using managedaccounts.com.au.
The MDA model has enlarged their capacity to service a larger number of clients in turn boosting their productivity and profitability. The retail super solution will only enhance this across their broader client base.
In addition, the cost savings generated by efficiency gains, greater automation, reduced errors and scale, have enabled some firms to bring down the overall cost of portfolio management and advice, which can either be passed onto the client or retained by the advisory firm as increased profitability.
It has also made acquiring complementary businesses a more viable and attractive option because advisory firm back offices can be merged, unnecessary costs can be stripped out and profitability can be maximised at the same time as delivering a superior client experience.
Download a free copy of the managedaccounts.com.au white paper “The limited discretion clock is ticking”.
