Managed Discretionary Accounts (MDAs) have been an alternative to managed funds for the past ten years since ASIC have issued a regulation guide in relation to MDAs (RG179). There are advantages for investors when choosing to invest in MDAs over managed funds including beneficial ownership of underlying financial instruments, transparency of trading activities of investment managers and the ability for clients to monitor their portfolio. Just like in managed funds, MDAs are managed by professional investment managers who have the expertise, information, research and have good track records to prove potential investment opportunities for investors
The difference in the setup between MDA and managed fund is that MDA involves a segregated trust account for the investor which the MDA manager has discretion to make trades for the investor on an individual basis whereas in managed funds the fund manager is pooling all the investors investment with the other investors into the same class of investment as others.
When investing money into MDAs, the Managed Discretionary Account operator or manager will use his or her discretion to place trades on an account in the client’s name. The strategy used by the MDA operator or manager is outlined in the Investment Program that is usually disclosed in the Statement of Advice or in a separate document that may be called Information Memorandum or Investment Mandate.
Since MDAs are dealt in an individual basis rather than being pooled together it would make sense that MDA investors would have a more tailored product to managed fund investors. Also investors have the ability to view their trade account to monitor performance which offers greater transparency for the investor.
How Managed Discretionary Accounts Work
For retail clients who wish to opt for a Managed Discretionary Account, they may do so by completing an application with a licensed MDA service provider or an authorised representative of an AFS licensee with MDA authorisations. The initial application generally includes a fact finder in order for to determine the client’s financial situation, objectives and risk profile to conclude if the client is suitable for the MDA service. Some MDA providers may be able to issue you an investment mandate or information document prior to the application form which outlines the Investment Program. Other MDA providers may choose to only disclose the investment program once the client is deemed eligible or suitable for the product in the Statement of Advice.
Once an application is completed and reviewed, a Statement of Advice is issued to the client that determines and explains if the client is suitable for the MDA. Should the client be suitable to proceed the client will need to sign and agree to an Authority to Proceed and MDA contract document. Documents will also need to be completed to setup the relevant trading account and to authorise access to the MDA operator or manager. The MDA trading accounts is setup with an executing broker which the investor is able to deposit and withdraw while all the daily trades are placed by the MDA manager.