Managed Discretionary Accounts Increase in Popularity

Mar 02, 2015

If you've watched The Wolf of Wall Street, you will recall how the executives would call their clients to propose an investment opportunity. While that was the way to do business in the past, technology now allows for much more efficient and cost-effective trading.

It is no longer practical for traders to call each individual client to provide them with investment opportunities when they become available. Markets move very rapidly and timing is crucial in implementing valuable trades. The slightest delay can cause people to miss out on opportunities.

Introducing Managed Discretionary Accounts

Individuals who opt for a Managed Discretionary Account (MDA) service face a lower risk of missing out on investment opportunities. This type of service involves the investor giving the MDA Operator or Manager the right to trade on behalf of their client accounts either as an Authorised Agent or by issuing them with Limited Power of Attorney. Therefore saving time on phone calls that would be otherwise required to receive consent from the client for each and every trade.

There are many reasons why MDA services are an advantageous choice for investors. By deferring trading decisions to the MDA operator, investors can easily participate in active trading strategies as the trades are managed and monitored on a constant basis. Furthermore the MDA operator usually is educated, skilled and more experienced in dealing in the markets.

Of course, you will have to be able to trust the MDA service in order for it to be an appropriate investment vehicle. However, the client still retains ownership of the account or assets and therefore has the rights to control the assets and override the MDA operator/manager’s decision such as in terms of withdrawing cash from a trading account and closing open trades.

Investors should only participate in MDAs that are operated by Australian Financial Services Licence (AFSL) holders with authorisations to provide advice and deal in managed investment schemes including MDA services..

MDA operators/managers set their own fees for their service and therefore can vary widely. Some charge a management fee that incurs on a weekly, monthly or even yearly basis. Some may charge a fee based on their trading performance. They may even implement a fee structure which is a combination of both management and performance fees. It is therefore recommended that clients should research and review fee structures that should be included in the Financial Services Guide (FSG) before