A personal investment account where you own investment assets, such as company shares or units in a managed fund. You give someone else (the MDA provider) the authority to buy and sell investments on your behalf. Financial advisers often use MDAs to manage portfolios for their clients.
How an MDA works
You sign an agreement (MDA contract) with the MDA provider. This gives the provider the discretion to buy or sell investments without having to check with you.
You and the provider agree on an investment program, and they must make investment decisions in line with this.
The investment program sets out what the MDA provider can invest in, and what trading strategies to use. This reflects the investment strategy in the Statement of Advice (SOA) given to you by your financial adviser. Your financial adviser may also be your MDA provider.
The provider must review the investment program at least every 13 months. This is to make sure it continues to be suitable for you.
An MDA may be hosted on an online investment platform. The MDA provider uses the platform to buy and sell assets on your behalf. It also has tax and reporting services.
You can log in at any time to see how your investments are performing.
It's important to compare the benefits to the costs and risks before you invest in an MDA.
Benefits of an MDA
MDAs can be useful for investors who don't have the time or expertise to manage their own investments. They may not be suitable for all investors.
Benefits of an MDA include:
- Fewer decisions — the MDA provider makes day-to-day investment decisions on your behalf. This means fewer decisions for you to make and less paperwork to review.
- Transparency — MDA platforms let you view all the assets you own in the account. You can see fees and charges, and how your investments are performing. Look for an MDA with this feature.
- Ease in transacting — the MDA provider can buy or sell assets to respond quickly to market changes.
- Access to professional managers — some MDA providers use professional investment managers to trade on your behalf.
Risks of an MDA
Risks of using an MDA include:
- Disagreement with investment decisions — the MDA provider may make investment decisions you do not agree with. If it's in line with the investment program, you still have pay for the investment (or reversal costs).
- Changes to your situation — the MDA provider makes investment decisions based on an agreed investment program. If your financial situation changes and you don't update them, the provider could make decisions that no longer suit.
- You could pay more — fees and costs can add up quickly and reduce your investment returns. MDAs may be a lot more expensive than investing directly.
If you're uncomfortable with these risks, or want to be in control of your investment decisions, an MDA may not be right for you.
Costs of an MDA
Check the fees and costs before you invest, as these reduce your investment returns. You can see a list of fees in the Financial Services Guide (FSG) and the Statement of Advice.
Fees may include:
- Adviser service fee — an ongoing fee paid to your adviser for providing advice and arranging your investments.
- MDA service fee — a fee to use the MDA.
- Brokerage fees — a transaction-based fee charged for trading financial products.
- Investment product fees — fees to invest in financial products.
- Platform fees — charged if your MDA is managed via a platform (check the Investor Directed Portfolio Services Guide).
- Exit fees — there may be fees or restrictions when transferring assets to another financial adviser or platform.