ASIC to take closer look at advisers providing MDAs

Speaking at the 15th annual Wraps, Platforms & Masterfunds conference last month, Ms Wivell Plater said that since the ban on conflicted remuneration became effective, more advisers have begun looking at MDAs as way to replace this type of "top-up income".

However, the question ASIC will be asking is: "Are the MDA services that [advisers] construct in the client's best interests?" Ms Wivell Plater said.

"One thing is for sure: ASIC will scrutinise these offerings very carefully.

"[ASIC] made it clear they don't believe that the average financial planner has the skills to provide investment management services and they expect this aspect of the MDA service to be provided by suitably-qualified investment management professionals.

"So advisers who don't incorporate this type of expertise into their MDA service offerings are likely to be the subject of adverse regulatory scrutiny."

According to Ms Wivell Plater, MDA services are for "high conviction" advisers who have backgrounds in investment management or the ability to put together specialist investment management packages that offer clients alternatives to the traditional approved product lists.

The benefit of MDAs comes from being able to charge fees for two services, she said.

"[For instance], ongoing strategic financial planning advice of the more traditional kind on one hand, and investment selection and active management," she said.

"The advent of platforms in the 1990s squeezed the margin away from fund managers and put it in the hands of the platform operators. But FOFA has significantly diluted the power of the platforms who have been forced to offer naked rate cards, resulting in a flight to the bottom of the price.

"This has provided advisers, whose power lies in their stranglehold on access to clients, with a golden opportunity to scoop up this newly available margin."

However, this 'golden opportunity' is not suited to every adviser, Ms Wivell Plater said.

"MDA services are seen as a way for advisers to provide additional value to their clients by offering a more closely tailored and actively managed investment strategy," she said.

"But not all advisers can genuinely add value in this manner. Unless they have unique and specialist investment management expertise, you would have to question whether the average –and particularly the less-than-average – adviser can genuinely offer better outcomes than professional investment managers."