Licensing and your options: changes to limited MDA requirements

Advisers using limited managed discretionary accounts (LMDAs) with their clients will need to fulfil new licensing requirements from 1 October 2018.

While some may already be in the process of acquiring the updated licence or already have one, others may need to consider their options to continue to offer the service to their clients.

BT spoke to Claire Wivell-Plater, The Fold Legal Pty Limited, about the changes and what advisers might need to do. [Watch the webinar]

Using an LMDA with clients

MDAs can be attractive to clients looking for transparency, ownership and flexibility in investments, but with the continued option of having someone else manage investments on their behalf. In complete form, it involves four components: advice to the client, ongoing investment management on their behalf, administration and reporting and custody of their investments held by the adviser.

Ms Wivell-Plater says, “in the case of an LMDA, the administration, reporting and custody of the investments is held by a third party, generally a platform, while the adviser continues to offer the investment management and advice components.”

Advisers have been able to offer LMDAs to their clients under existing licences, but from 1 October 2018, will be required to hold licensing specific to the service. Those without licences will be unable to operate on their existing discretionary basis and will be required to get client approval for each change required to the client’s investment portfolio.

The new licensing requirements

To continue to offer LMDAs, you will need to be licensed to provide:

  • personal financial advice relating to MDA services.
  • deal by applying for and issuing, varying or disposing of a financial product.
  • general financial advice relating to all financial products in which the MDA invests.
  • apply for the issue, variation or disposal of a financial product on behalf of another (that is, your client).

“You’ll need to apply for a variation to your licence if you are already licensed, or if you are an authorised representative, then your licensee will need to do this,” says Ms Wivell-Plater.

You can apply for a licence through ASIC. The online application includes a business description, table of organisational competence, personal statements, two business references and a financial assurance. The last can either be a pro forma of your profit and losses or a certificate from an accountant. The application is then assigned to an ASIC analyst and the assessment process can take 9-12 months to complete.

“Given timing, it’s probably too late to comply with the October deadline if you apply now so it’s worth considering your other options,” says Ms Wivell-Plater.

Other options for continuing to offer LMDAs to clients

Advisers caught in the situation of being unable to make the licensing changes in time for the 1 October 2018 deadline – or finding that the variation wouldn’t be suitable for their business model – could consider these three alternatives.

  1. Becoming an authorised representative of a licensee
    “This generally involves paying a fee to the licensee and operating under their licence. The licensee will monitor and supervise your activity,” Ms Wivell-Plater says.
    Whether this is a suitable option for you may depend on your preferred pattern of working and investment approach with your clients.
  2. Using separately managed accounts (SMAs) instead
    While similar in some ways to MDA arrangements, these are individual accounts held within registered managed investment schemes instead. They operate under complete product disclosure statements and may be an option to allow clients continued transparency over their investments.
    Advisers using BT Panorama could consider either of their two SMA solution sets.
    - Professional IMs: an “off the shelf” solution with more than 50 different portfolios.
    - Licensee portfolios: exclusively tailored for your clients, with your practice, dealer group or an external investment manager creating and managing the investment models.
    3. Using an external MDA provider
    In this scenario, you continue to provide advice to your clients but the external provider holds the licence to manage the portfolio and investments and act in a discretionary capacity.
    Advisers using BT Panorama could consider the third party MDA solution available on the platform, allowing them to use an external MDA provider and the Panorama tools to build and manage clients’ model portfolios.

With only a short time before licensing requirements become active, it will be valuable for advisers to consider their options before the deadline to allow enough time to both evaluate and implement suitable solutions for their clients under the new regime.

Next: LMDA expiring 30 September 2018 – Are you ready?

Find out what are the regulatory changes coming into effect for limited MDA’s later this year and what options you may wish to consider.

Information current as at 30 April 2018. This communication has been prepared for use by advisers only. It must not be made available to any retail client and any information in it must not be communicated to any retail client or attributed to this article. This article may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs having regard to these factors before acting on it.

BT Portfolio Services Ltd ABN 73 095 055 208 AFSL 233715 (BTPS) operates Panorama Investments and administers Panorama Super. BT Funds Management Limited ABN 63 002 916 458 AFSL 233724 (BTFM) is the trustee and issuer of Panorama Super, which is part of Retirement Wrap ABN 39 827 542 991. Westpac Financial Services Ltd ABN 20 000 241 127 AFSL 233716 (WFSL) is the responsible entity and issuer of interests in BT Managed Portfolios. Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian credit licence 233714 (Westpac) is the issuer of the BT Cash Management Account (BT CMA). Together, these products are referred to as the Panorama products. A Product Disclosure Statement or other disclosure document (PDS) for the Panorama products can be obtained by contacting BT on 1300 784 207 or by visiting You should obtain and consider the relevant PDS before deciding whether to acquire, continue to hold or dispose of interests in the Panorama products.In addition, BTPS is the provider of the Panorama SMSF Establishment Service and the Panorama SMSF Administration Service. The Guide and Terms and Conditions for these services are available by contacting BTPS.

WSFL and BTPS are subsidiaries of Westpac Banking Corporation ABN 33 007 457 141 (Westpac). Apart from any interest investors may have in Westpac term deposits, Westpac securities or the BT CMA acquired through the Panorama products, an investment in, or acquired using the Panorama products, is not an investment in, deposit with or any other liability of Westpac or any other company in the Westpac Group. These investments are subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. Westpac and its related entities do not stand behind or otherwise guarantee the capital value or investment performance of any investments in, or acquired through, the Panorama products.