Over the last three to six months, I’ve been amazed by the number of times I’ve heard things like, “The only way to do business efficiently now is to have a Managed Discretionary Account“(‘MDA’) or, “To be successful now you need an MDA”, and, when talking about our business, “You’re lucky you’ve got an MDA”.
It certainly seems that some planners believe that having an MDA is like owning the goose that laid the golden egg. The reality is it’s not all champagne and roses.
Firstly, having an MDA is not going to bring more clients through the door. Even though you think you have a competitive advantage, prospective clients don’t understand that. Telling them that you can buy and sell investments, without actually telling them – isn’t exactly going to put them at ease. Remember these people don’t really know you yet!
Secondly, it does not give you carte blanche to do whatever you want with client portfolios. Your MDA agreement must include a mandate and you can’t step outside of that mandate. You also need to agree what might be held outside of the MDA agreement. Imagine if you acquired an asset that had a term (such as a property trust) as part of the MDA and for whatever reason, your client left you. That asset, purchased without your client’s knowledge, could create bigger problems for you than you may imagine.
Thirdly, you must have a process in place for buying and selling investments. An approved product list is nothing more than a list of acceptable investments. You can’t just sell a product and buy a different product without having a documented reason for doing so. Furthermore, if you are managing a direct investment portfolio, you must have an investment committee convening on a regular basis with a documented investment process and outlining current holdings, buy/sell decisions, portfolio weightings and weightings between cash and being fully invested.
Finally (and most importantly), it does not mean you can avoid interacting with your clients. Sure, you don’t need to do an SoA or RoA every time you want to change or restructure investments, but as with anything, regular communication and sharing of information enhances the whole MDA experience.
So what’s the upside? Given all the above and assuming you can satisfy these requirements, you do have a competitive advantage!
Being able to make a decision and act on it quickly without the need for getting in touch with clients and waiting for them to respond, allows you to restructure your portfolios to suit updated economic or market conditions when it needs to be done – not one, two or even three days later. I have had planners tell me it can sometimes take over a week to get all the responses needed to update everyone. Certainly, if you are investing in direct shares (or other direct investments), you sometimes need to move as soon as possible, particularly if bad information comes to light.
But beyond the obvious investment benefits, you also have the ability to offer your clients something bespoke. A service beyond what the majority in the financial planning community can offer and that is simply the service and benefit of doing it all for them.
Once a relationship is established, you provide a service as an adviser who they trust implicitly, acting on their behalf and allowing them the freedom to do the things that they want to be doing and not worrying or stressing about investment decisions – the things they are paying you to do.
Having the ability to operate under a MDA environment does require some level of commitment and effort beyond the norm and it’s not for every client or for that matter, every financial planner. However, the benefits you gain are worth every bit of that hard work and you will never look back.
David is the founder and principal at SIRA Group. He has twenty five years’ experience in the financial services industry, and is an expert in tax and superannuation strategies.
