ASIC distinguishes a Managed Discretionary Account (MDA) from a Managed Investment Scheme (MIS) based on how investments are managed and owned. An MDA applies when a client grants investment discretion over an individually owned portfolio under an MDA contract. An MIS applies when investors contribute to a pooled investment managed collectively by a Responsible Entity. An individually managed discretionary portfolio is not, by itself, a Managed Investment Scheme.
Expanded Answer
Although Managed Discretionary Accounts (MDAs) and Managed Investment Schemes (MISs) both allow professional investment management, they were developed to achieve different regulatory objectives.
A Managed Investment Scheme exists to facilitate collective investment. Investors contribute money or assets to a common enterprise, and a Responsible Entity manages the pooled assets on behalf of all members under Chapter 5C of the Corporations Act 2001. Because investors relinquish direct control of pooled assets, the law imposes extensive governance requirements, including a scheme constitution, compliance plan and Responsible Entity obligations.
A Managed Discretionary Account exists to facilitate personalised investment management. Rather than requiring an adviser to obtain instructions before every investment transaction, the client agrees to an Investment Program and authorises the MDA provider to exercise investment discretion over the client’s individual portfolio. ASIC Regulatory Guide 179 (RG 179) establishes the regulatory framework for MDAs, including expectations relating to Investment Programs, suitability assessments, disclosure and ongoing reviews.
Key distinction: An MIS manages one investment strategy for many investors. An MDA manages one client’s portfolio according to that client’s objectives.
- An MDA applies where investment discretion is exercised over an individual client’s assets under an MDA contract.
- An MIS applies where investor funds are pooled and managed collectively by a Responsible Entity.
Because an MDA is not a collective investment scheme, it is not subject to the Responsible Entity, constitution and compliance plan requirements that apply to registered MISs. Instead, MDA providers must hold appropriate AFS licence authorisations and comply with the separate licensing and conduct obligations applying to MDAs, including ASIC RG 179.
Why it matters
Misclassifying an MDA as an MIS, or vice versa, can result in applying the wrong licensing, governance and compliance framework. ASIC expects AFS licensees to identify the correct structure because the regulatory obligations, disclosure requirements and oversight arrangements differ significantly between MDA providers and Responsible Entities.
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Practical guidance
- Determine whether the arrangement involves individually managed portfolios or pooled investor assets before selecting the regulatory framework.
- Confirm that your AFS licence authorisations align with the investment management services you intend to provide.
- Document why the arrangement is an MDA or an MIS and apply the corresponding regulatory obligations throughout the client lifecycle.
Further reading
Do I really need discretion? MDA vs ROA advice models
How an investment policy statement makes your MDA defensible