Many of the assumed risks in ASIC 's consultation paper on managed discretionary accounts (MDAs) do not hold if clients are directly invested, says Bailey Roberts Group chief executive Ian Bailey.
In a submission to the Australian Securities and Investments Commission's (ASIC's) Consultation Paper 200, Mr Bailey also said the regulator's proposals risk stifling innovation in the MDA sector by eliminating market participants.
While he accepted there was a sound basis for updating the MDA regulations, Mr Bailey said ASIC had failed to properly explain the risks MDAs pose to consumers.
"ASIC hasn't consulted with enough of the industry, and I don't think it understands the different types of MDAs that are out there," said Mr Bailey.
"ASIC needs to differentiate between direct investments and investments held in custody."
The clients of Bailey Roberts, all of whom are directly invested, have a bank account in their own name, own their shares, and receive a contract note from the broker, Mr Bailey said.
Furthermore, if Bailey Roberts went "belly up", its clients would not be affected (because they directly own their investments) - making the requirement for MDA operators to hold financial assets if they go into liquidation redundant.
As an alternative to ASIC's proposals, Mr Baily said directly invested MDA services should be identified as such by licence conditions, which would also allow a decreased professional indemnity insurance premium.
MDA operators should also be licensed according to their investment type, rather than having a 'one-size-fits-all' approach put on them by ASIC, Mr Bailey said.
Finally, audits should not be required for direct investment MDAs, he said.
"The smart things in the industry always come from small people. One very quick way to limit innovation is to exclude the innovators," Mr Bailey said.