What is a Managed Discretionary Account (MDA)?

Investment management is the professional management of various shares and assets to help investors reach their financial goals.

Now imagine handing over the reins of your financial journey over to a seasoned investment strategist. That’s essentially the type of financial service a Managed Discretionary Account offers.

Instead of constantly scanning the financial markets, you can trust experts to steer your portfolio through economic storms and sunny growth periods. It’s like having a personal financial captain at the helm, tailoring the course to each individual’s goals and risk tolerance.

It’s perfect at a time of increasing complexity of investment environments and the demand for personalized financial products and solutions.

Understanding MDAs

A Managed Discretionary Account in Australia is a specialized investment service where investors delegate investment decisions to a portfolio manager (MDA provider) to manage their assets according to an agreed investment program. 

This streamlines the investment process and allows the MDA provider to make decisions without consulting the client for each transaction.

Key features of MDA services include tailored management of a diversified investment portfolio, where the underlying investments can span various asset classes, including equities and managed funds. 

Unlike in a traditional managed fund, an MDA client retains ownership of the underlying assets, providing greater flexibility and transparency.

MDAs differ from other investment accounts, such as separately managed accounts, by offering a more hands-on approach from the portfolio manager while still adhering to strict disclosure requirements and regulations set by the Australian Securities and Investments Commission (ASIC). 

This investor portfolio service ensures investment decisions align with the client’s best interests.

Pros and Cons of MDAs

Managed discretionary accounts, like any investment option, come with their own set of advantages and disadvantages, making it crucial for investors to understand MDAs to make informed decisions about their suitability for their financial strategy.

Benefits of MDAs

MDA financial services offer numerous benefits for investors seeking professional management of their portfolios. 

Professional Management and Expertise

As portfolio managers or investment managers actively oversee the investments, leveraging their knowledge to respond swiftly to market changes.

Customization and Flexibility

Managed discretionary accounts provide investors with the ability to tailor their portfolios according to their specific investment strategies and risk tolerances. This personalized approach ensures that the investment aligns with the client’s financial goals.

Potential for Higher Returns

MDAs can be dynamically managed to capitalize on market opportunities. The active management style can lead to better performance, particularly in volatile markets.

Reduced Administrative Burden

MDA providers handle portfolio management, record-keeping, and reporting, allowing individual clients and business owners to focus on financial objectives without daily decision-making hassle. Their professional management, customization, and reduced administrative tasks make them attractive options for investors.

Risks and Considerations

Managed Discretionary Accounts in Australia come with several risks and considerations that investors should be aware of.

Market Risks and Investment Volatility

MDAs expose clients to market risks and investment volatility, as the value of investments can fluctuate significantly based on market conditions. This inherent risk requires investors to be prepared for potential losses.

Fees and Costs Associated with MDAs

When you invest, always consider the fees and costs of any financial products, including adviser, management, platform, and brokerage costs, as these fees can affect returns, making it crucial for clients to understand the total cost structure.

Selecting a Reputable Portfolio Manager

Choosing a reputable and experienced portfolio manager to provide MDA services is crucial. The quality of the MDA provider can significantly influence investment outcomes, so due diligence is necessary to ensure alignment with the client’s best interests.

Regulatory Considerations and Investor Protections

Managed discretionary accounts as a financial service are regulated by the Australian Securities and Investments Commission (ASIC), which enforces disclosure requirements and investor protections. Understanding these regulations helps retail clients navigate the MDA financial service landscape effectively and safeguard their investments.

Who Should Consider an MDA?

Managed discretionary accounts, offering professional management and tailored investment strategies can be appealing to investors. However, not all investors find them suitable, making it crucial to identify suitable clients for informed investment decisions.

Investor Profile

A managed discretionary account is suitable for investors who value professional management, flexibility, and the potential for higher returns. Ideal investor profiles include those with significant assets, a long-term investment horizon, and a willingness to delegate investment decisions to MDA providers and financial advisers.

Engagement Level

A managed discretionary account is beneficial for investors who lack time, expertise, or desire to actively manage their portfolios. By entrusting their investments to a professional, clients can focus on their financial goals.

Risk Appetite and Investment Preference

MDA services provide a personalized investment approach, allowing clients to retain direct ownership of their underlying shares or other assets, enhancing transparency and control. This structure also allows for flexibility in adapting to changing financial situations or investment objectives.

Steps to Setting Up an MDA

Setting up a Managed Discretionary Account in Australia involves several key steps to ensure that the investment aligns with the client’s financial goals and risk tolerance.

Choosing an MDA Provider

The first step is selecting a reputable financial adviser or MDA provider. This professional will guide the client through the MDA process and help customize the investment strategy.

Initial Consultations and Goal Setting

The adviser will engage in initial consultations to understand the client’s financial goals, risk tolerance, and investment preferences, thereby establishing a comprehensive understanding of their needs and expectations.

Customizing the Investment Strategy

The financial adviser will create a customized investment program, documented in an investment program, outlining investment types, asset allocation, and portfolio management guidelines based on agreed-upon goals.

Regular Reviews and Performance Monitoring

The adviser will regularly review and monitor the MDA’s performance to ensure it aligns with the client’s goals and adjusts based on market conditions and financial changes, ensuring the MDA continues to serve the client’s best interests.

Let’s Recap

An MDA works by allowing you to delegate management of our invested assets to an MDA provider. An investment manager directs your diversified portfolio on your behalf, streamlining the asset management process.

An MDA contract offers professional expertise, personalized goals, higher returns, and reduced administrative burdens, making them ideal when seeking tailored management. However, managed discretionary accounts also carry risks like market volatility and fees.

It’s crucial for you to assess your financial situation and goals, and seeking professional advice is recommended for personalized investment strategies.

Ready to Build an Investment Portfolio? 

Investing doesn’t have to be complicated and time-consuming. Whether you’re young or old, it’s never too late to start investing, with knowledge and expert guidance you can achieve your goals. 

Need investment advice? Coastal Advice Group can work with you to tailor your investment plan and build your portfolio. Our financial advice team can help you establish direction for your investments to achieve your financial and lifestyle goals.  

Call us or book online to secure your consultation today! 

References:

https://asic.gov.au/regulatory-resources/managed-funds/managed-discretionary-accounts

https://www.thegoldentimes.com.au/what-is-a-managed-discretionary-account-mda/

https://moneysmart.gov.au/glossary/managed-discretionary-account-mda