Managed Discretionary Account clarity from ASIC


Transcription of Finance News Network interview with Managed Accounts Holdings Limited (ASX:MGP) CEO, David Heather

Carolyn Herbert: Hello, I’m Carolyn Herbert for the Finance News Network. Joining me from Managed Accounts Holdings Limited (ASX:MGP) is CEO, David Heather. David, welcome back.

David Heather: Thanks Carolyn.

Carolyn Herbert: Can you start by giving us a quick recap of the business and what it provides?

David Heather: Managed Accounts Holdings is a specialist managed account provider, as the name suggests. What we do is work with mainly independent financial advisory firms – helping them bring better portfolio solutions to their clients, using an MDA concept. This gives them much better administration, much better ways to actually implement changes in their client portfolios, which is better for the client.

Carolyn Herbert: The long awaited changes to the MDA regulations were made at the end of September. What were the key changes?

David Heather: There were several key changes, Carolyn. First of all, ASIC elected to remove what’s called the limited MDA concept, as a structure. And we saw that coming, and it’s probably something that should have been done quite a while ago. Secondly, what they’ve done is again, quite rightly, tightened up: (i) the operating rules through which MDA arrangements need to be implemented, and (ii) the disclosure that clients need to receive from their MDA provider.

They also recognise that there’s many different business models in the industry. And they’ve given those business models some creditability, by giving different roles and more clarity on what they’ve got to deliver, and how they’ve got to deliver their function. And probably, most importantly, from an investor point of view, clarified a whole lot of conflict of interest provisions that ASIC would like to see everyone include in their business models.

Carolyn Herbert: What’s your view on the changes ASIC has made?

David Heather: I think the changes are positive for investors. It’s cleared up a lack of clarity between MDA providers and, let’s call them, ‘limited MDA providers’. I think that’s a positive thing. It’s made sure that those two vehicles are on a level playing field. The other thing that it has done is really clarified for all the participants, what different roles have to deliver and how they’ve got to deliver them.

Carolyn Herbert: You previously identified that ASIC would make changes to remove the limited MDA concept. Can you give us a bit more insight into this?

David Heather: If we go back and understand what that limited MDA concept was, that was allowing financial advisory firms and other parties, to manage client portfolios with discretion – without having appropriate licence authorisation, in their financial services licence. Obviously what that doesn’t do is create a situation where things like PI insurance and the operating rules (and all the things that go with running an MDA to be consistent between limited MDAs and MDA) … So by virtue of ASIC bringing a regulatory change into play, which allows for consistency, that’s now going to force limited MDA providers to actually look at their business models, and come up with a new way of delivering their solution in an authorised way.

Carolyn Herbert: As you’ve indicated, you say changes to these regulations are a positive thing for Managed Accounts Holdings. So can you elaborate on this view a little bit?

David Heather: Picking up that outsourcing discussion, clearly those parties that do not wish to continue with a limited MDA concept over the next two years, have to make a decision on which way they’re going to go. Become MDA providers themselves, or find an alternate solution. We represent a very clean alternate solution for those firms. They can come to our business model and actually do the same things they’ve been doing historically, but under a more compliant structure and better admin, better technology than what they’ve been using previously. So that gives us an opportunity to grow our client base, which is positive for the business, grow our revenue streams and obviously grow our EBITDA, going forward.

Carolyn Herbert: Finally David. What’s the priority for Managed Accounts in light of these changes and the long-term ambition for the company?

David Heather: As we’ve been saying in our quarterly updates for a couple of years now, we’ve seen these changes coming. We’ve been really working within the industry to educate the industry what the options are, if the limited MDA concept is removed. So hopefully, we’ve been seen as a good option for players to come and speak to, if they need an alternate. We’re going to continue to actually highlight to the market, our capability in delivering a solution in this space. We recently issued a white paper on the concept. We continue to work with the players in the market who need some help. And obviously what that is all about is then creating a solution for those firms, to move their clients into a better structure.

Carolyn Herbert: David Heather, thanks for the update.

David Heather: Carolyn, thanks for your time.