If you are providing a managed discretionary account (MDA)
service, you need to ensure that your client is making a
well-informed decision in entering into the MDA service. This
checklist will help you verify that you are providing your clients
with sufficient understanding of the underlying risks associated
with an MDA offering.
Providing an FSG
A retail client must be provided with a financial services guide
(FSG) prior to entering into an MDA contract. This must include
sufficient information to enable a retail client to make an
informed decision about whether to enter into an MDA service. This
includes, amongst other things, information about any significant
risks associated with investing through the MDA service, a
statement that the MDA contract will include an Investment Program
and Statement of Advice that meet certain requirements, and any
other information that might reasonably be expected to have a
material influence on a retail client's decision about whether
to use the MDA service. The additional requirements are set out in
Order [CO 04/194] and further details can be found in
ASIC's Regulatory Guide 179.
Entering into an MDA contract
An MDA provider must also enter into an MDA contract with each
retail client. As noted, the Investment Program and Statement of
Advice must meet certain requirements. These include an outline of
the discretions the provider will be authorised and required to
exercise, any significant risks associated with the MDA contract,
and the basis on which the MDA contract is considered to be
suitable for the client.
Focus on significant risks, not products/strategies
On the basis of the guidance contained in
ASIC's Regulatory Guide 179, it is our view that an adviser
must ensure that a client understands the significant risks
associated with the MDA offering, rather than the underlying
products or strategies themselves. Of course, explaining the risks
will invariably involve some explanation of the underlying strategy
or products. For example, if the MDA includes a discretion to trade
CFDs or other derivatives, a clear explanation of the risk is
necessary but a detailed explanation of the way CFDs work in our
view would not be required.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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