The financial planning industry has been eagerly awaiting an update on the future of the current MDA regime.

The issue

Financial planners with powers of attorney to rebalance portfolios (but not to contribute or withdraw funds) within a platform that is regulated by ASIC (eg. investor directed portfolio services (IDPS), IDPS-like, superannuation wraps and master trusts) are currently exempted from:

  • the need to hold an Australian Financial Services Licence to provide the MDA service;
  • the need to register the MDA service as a managed investment scheme; and
  • certain product disclosure requirements.

However, this is provided they comply with certain financial services guides and statement of advice requirements as set out in ASIC Class Order CO 04/194 Managed Discretionary Accounts (CO 04/194) and Regulatory Guide 179 Managed Discretionary Account Services (RG 179). Despite such limited powers of attorney within a platform replicating the operation of an MDA, this relief was given in the form of an ASIC no-action letter, dated 5 November 2004.

ASIC revisited this approach to MDAs in Consultation Paper CP 200 Managed discretionary accounts: Update to RG 179 (CP 200) which was released on 8 March 2013, with submissions having closed on 19 April 2013.

What's about to happen

As proposed in CP 200, ASIC has taken the view that the limited powers of attorney relief should no longer continue when CO 04/194 sunsets on 1 October 2016. ASIC have recently confirmed that they therefore intend to:

  • withdraw the no-action relief letter;
  • incorporate some relief into a remade class order. However, the relief will only extend to avoiding duplicated disclosure requirements as between the MDA operator and the platform operator; and
  • there will be a transition period of between 12 to 24 months for limited powers of attorney holders to obtain their MDA authorisations, however the exact transition period will not be decided until ASIC's regulatory policy group meets in early September 2016.

An updated RG 179 and Class Order are expected to be issued in late September 2016.

Next steps for financial planning groups

Financial planning groups should consider whether they have limited powers of attorney which permit rebalancing within a platform, and decide:

  • whether they want to continue offering this service; and
  • if "no": how to communicate this to clients, revoke the powers of attorney, and amend their terms of service with their client and possibly the platform operator. Amendments will also need to be made to disclosure documents;
  • if "yes": consider whether they have the requisite skill sets amongst staff to obtain an MDA authorisation, and if not, look at procuring these. The group should also start to plan the MDA licensing application and implementation project, and consider any amendments to terms and conditions and disclosure documents which are required as a consequence.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.