What You Need To Know About Managed Discretionary Account Fees

Managed Discretionary Accounts are vehicles that allow diversified investment portfolios owners to enjoy a ‘passive approach’ to investing. All the while the account manager proactively applies their expertise, skills, resources and research that they and the firm they are employed by have accumulated over many years.

Managed Discretionary Accounts as the name suggests, allows the account managers ‘discretion’ in the decisions they make in terms of buying, selling, holding, diversifying and applying for a wide range of financial assets to meet the strategy set out in the agreements signed with the client.

 Like everything in the financial sector, Managed Discretionary Accounts have been set up with fees in mind, so let’s look into how they work.

Managed Discretionary Account Fees are charged for the ongoing management and execution of the investment strategy you and your account manager have agreed to pursuein line with your already established financial goals.

Unlike funds, Managed Discretionary Accounts provide investors with an account that has their own funds contained within it and that are consequently managed by a third-party account manager or trader. The benefits of thisare that those people with potentially no time to spend managing their portfolio or potentially no interest in the money markets except to enjoy the money they can make from them, can actively put their money to work – with the help of a licenced and qualified expert.

ASIC considers MDA services and the MDA contract constitutes an ongoing fee arrangement. You must include MDA fee disclosure in your annual FDS^[1]. As such, if you are looking to invest in a Managed Discretionary Account you should always be fully aware of the fee structure and it should form part of the Managed Discretionary Account contract.

While Managed Discretionary Account fees may vary between different service providers, investors should expect them to be in-line with that provided to hedge funds and other managed account services. The rule of “2 and 20” or “3 and 33” could apply depending on the supplier.

That is to say that a 2% or 3% fee of the total amount would be applied to your account each and every year while 20% to 33% of the profits generated in the Managed Discretionary Account would also fall back as a fee for service, a performance bonus if you will.

Although that may sound like a lot, say on a $250,000 investment that only equates to a fee of $5,000 per year, plus the performance bonus on say a 12% return ($30,000) for the year being $6,000. For actively managing your money on a daily basis, making you $24,000 in profits and letting you sit back and watch your money grow, you are paying $11k per year!

There are risks involved depending on your risk tolerance and investment goals, so the profit will vary or may result in losses, so it is always vital to not only understand you Managed Discretionary Account Fees, but also the markets in which you are entering before signing on.

[1]https://fpa.com.au/policy/policy-issues/managed-discretionary-accounts-mda/

We welcome you to give our team a call to discuss your investment goals and objectives.

You can call Walker Capital Australia on +61 2 8076 2210, and we’ll see how we can help you achieve your investment goals.

Want to read more great information on Managed Discretionary Accounts? Check out ourManaged Discretionary Accounts article: Managed Discretionary Accounts