Legal framework & regulation of managed accounts

[Pages:9]Legal framework & regulation of managed accounts

Stephen Etkind Partner Rita Livanos Lawyer Minter Ellison Lawyers

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Managed investment schemes

? The characteristics of a managed investment scheme include:

? people contribute money to acquire rights to benefits produced by the scheme

? any of the contributions are pooled or used in common enterprise

? produce financial benefits or benefits consisting of rights or interests in property

? members do not have day-to-day control

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Managed investment schemes

? Specific structures include:

? IDPS ? IDPS-like ? MDA

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Investor directed portfolio services

? IDPSs involve a menu of investment options ? Typically marketed as master funds and

wrap accounts ? Client makes all the investment decisions

? client has the sole discretion to decide what (but not necessarily when) assets will be acquired or disposed of

? IDPS operator can give effect to prior written instructions given by the client

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Investor directed portfolio services

? ASIC takes the approach that IDPSs are managed investment schemes & IDPS operators are regulated by ASIC as providers of financial services

? Australian financial services licence required ? Class Order relief available from:

? requirements of Chapter 5C ? fundraising provisions in Chapter 6D ? product disclosure provisions in Part 7.9

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Investor directed portfolio services-like schemes

? IDPS-like schemes are IDPSs that are structured like managed investment schemes

? Australian financial services licence required ? Class Order relief available from:

? requirements of Chapter 5C ? fundraising provisions in Chapter 6D ? product disclosure provisions in Part 7.9

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Managed discretionary accounts

? MDAs are arrangements that involve operators managing a portfolio of assets for a retail client on an individual basis

? MDA operators have the discretion to make investments without referring to the client for each transaction

? Client's assets are managed as a discrete portfolio belonging to that client

? No pooling of clients' portfolios

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Managed discretionary accounts

? ASIC takes the approach that MDAs are managed investment schemes & MDA operators are regulated by ASIC as providers of financial services

? Australian financial services licence required ? Class Order relief available from:

? requirements of Chapter 5C ? fundraising provisions in Chapter 6D ? product disclosure provisions in Part 7.9

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Separately managed accounts

? Core to the definition of an SMA is that individual securities are picked for the investor's portfolio based on model portfolios

? Investment decisions are made by the investment manager & executed on behalf of all investors by the managed account operator

? Typically SMAs tend to be more suited to retail clients because it is portfolio model driven

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Separately managed accounts

? Depending on the structure, SMAs may fall within ASIC's definition of an MDA

? therefore SMAs regulated in the same manner as MDAs

? Australian financial services licence required with appropriate authorisations

? Typically SMAs are structured either as a registered MIS or as an IDPS-like scheme

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Separately managed accounts

? Often the operator's Australian financial services licence authorisations will dictate which structure is used

? Requires a constitution & a PDS ? If structured as an IDPS, then requires an

IDPS guide

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Separately managed accounts

? Benefits of an SMA include:

? the assets are held on behalf of the individual ie. client has beneficial ownership of assets

? the stock is controlled on behalf of the portfolio ? SMA technology allows investors to access

portfolio models created by managers ? investors can log on to an online service & view

their underlying stocks as a single portfolio, even where stock is invested over more than one model portfolio within the SMA ? tax advantages for investors

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Individually managed accounts

? Investment portfolios are individually managed for each individual client

? manager recommends to clients when to buy & sell securities based on each client's stated investment strategy &/or objectives

? Typically more suited to wholesale clients as a portfolio is advised unique to client needs

? Investor makes decisions on each transaction or may authorise a specialist to execute transactions subject to an agreed investment strategy

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Individually managed accounts

? Depending on the structure, IMAs may fall within ASIC's definition of an MDA

? therefore IMAs regulated in the same manner as MDAs

? Australian financial services licence required with appropriate authorisations

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Individually managed accounts

? Benefits of an IMA include:

? IMAs allow more customisation by the client eg. they allow any existing shareholding to be incorporated

? Clients have beneficial ownership of assets and in some cases, clients can have legal title over assets

? tax advantages for investors

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ASIC MDA policy

? Australian financial services licence authorisations for MDA services

? FSG content ? MDA contract with investment program and

annual review

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