IMAP’s submission to the Australian Investments and Securities Commission (ASIC) consultation paper 200, Managed Discretionary Accounts: update to RG 175, was unveiled by the organisation’s chairman Toby Potter on Monday evening.
“It’s been clear from our interactions with ASIC that their level of knowledge about how MDAs work is probably relatively shallow,” Mr Potter said.
In addition, CP200 indicates that the regulator is unaware of the potential impacts of its proposed changes on MDA operators, said Mr Potter. He went on to discuss the four main MDA operating models currently in the market.
According to the submission, there are full service MDA operators that are responsible for all aspects of the service; specialist MDA operators who undertake administration and outsource advice, investment management and custody; investment managers who outsource administration, custody and personal advice; and platform-based MDA operators who provide investment management and advice but rely on a regulated platform for administration and custody.
The expertise, net tangible asset (NTA) and insurance requirements imposed on MDA operators by ASIC should depend upon which model is used, according to the IMAP submission.
According to IMAP chairman Toby Potter, CP200 also proposes MDAs be treated the same way as managed investment schemes – and with similar NTA requirements.
The proposed NTA requirement of $10 million or 10 per cent of revenue for operators will “substantially advantage large vertically integrated institutions at the expense of many of the current independent MDA operators”, according to IMAP.
But according to Potter, ASIC has recently indicated that in cases where MDA operators hold ‘incidental custody’ via an outsourcing arrangement with a custodian, the $10 million NTA will not be required.
“You’ll need to show in your licence that you can handle a custody arrangement, but so long as you outsource to a custodian you won’t need the $10 million,” said Mr Potter.
The IMAP submission also called for the creation of a class of licence for MDA operators which permits them “to operate the MDA service only for retail clients who have concurrently become clients of a regulated platform”.
The submission also argued that the requirement for an annual review for MDA operators was “excessive” and should be reduced to a two-year requirement.
“The requirement for annual reviews imposes a cost on the advising organisation, which may be inappropriate given the nature of client relationship or size of funds under management,” said the submission.
