Service models within Australia’s managed discretionary account (MDA) sector are at risk of over-regulation under changes proposed by the corporate watchdog, according to the Institute of Managed Account Providers (IMAP).
In March, ASIC proposed a series of changes to MDAs that would result in the refinement of the sector's investment program and financial advice as well as more stringent financial requirements for MDA operators.
In a submission to ASIC’s consultation paper, “Managed Discretionary Accounts: update to RG 179”, IMAP outlined key areas of concern and a number of proposals it hoped ASIC would consider.
In response to ASIC’s proposal for all MDA operators to conduct a report annually, IMAP recommended that time frame be scrapped and replaced with a two-year requirement.
“The requirement for annual reviews imposes a cost on the advising organisation which will ultimately be met by the client,” the submission said.
“The annual review may be inappropriate given the nature of client relationship or size of funds under management.”
IMAP proposed that the financial requirements for MDA operators that only operated through a regulated platform or managed investment scheme should be a minimum of $75,000 or 5 per cent of MDA revenue.
The institute recommended the net tangible assets requirements should be tailored to match the services provided by other MDA operators.
“The requirement and the proposed calculation methodology will substantially advantage large vertically integrated organisations at the expense of many of the current independent MDA operators,” the submission said.
“This will have the effect of reducing investor choice and favouring those organisations where conflicts of interest are endemic. It will have a further effect of increasing costs to investors without necessarily resulting in an improvement in investor protection.”
IMAP also said ASIC should provide clarity in regards to Australian financial services licence (AFSL) authorisation.
“[AFSL] authorisations are currently issued as either ‘interests in managed investment schemes limited to MDA services’ or ‘financial products limited to miscellaneous financial services limited to MDA services’, it said.
“There has been conflicting advice from ASIC about the type of authorisation which an MDA operator ought to be applying for.”
It also proposed that the AFSL authorisation structure and regulatory framework for MDA operators recognised four components and the diversity in the manner in which they were provided to clients.
The four components are: personal advice, investment management, administration/reporting and asset holding arrangements.
“IMAP is concerned that the current regime and the proposed changes may not adequately recognise this market reality, leading to over-regulation of many MDA service models,” it said.
“A regulatory regime which fails to recognise the distinctive models that exist in today’s marketplace and that might emerge in the future will result in the loss of access and excessive cost to investors.”
Source: Financial Observer May 8, 2013