Managed Discretionary Accounts vs Separately Managed Accounts
Managed Discretionary Accounts (MDAs) and Separately Managed Accounts (SMAs) are functionally similar but legally different investment options.
While both aim to provide professional portfolio management services, they diverge in structure and regulatory oversight.
Nucleus invests through both structures. The key functional difference for Nucleus products is:
- Managed Discretionary Accounts are more flexible. They tend to be much cheaper for smaller balances, and somewhat cheaper for larger balances.
- Separately Managed Accounts have more compliance oversight.
The similarities
Both options have professional portfolio managers exercise discretionary authority to make investment decisions. The autonomy allows managers to execute transactions—buying, selling, and rebalancing assets—without requiring explicit client approval for each action.
Within Nucleus products, both options allow investors to tailor their portfolios by screening out unwanted investments. For example, you may want to remove bank shares because you already own bank shares in your own name. Or you may want to screen out gambling stocks because of ethical concerns.
Both structures see investors directly own underlying assets from a tax perspective, rather than pooling them with other clients. This ownership structure affords investors heightened transparency and control over their investment holdings.
Both structures have capabilities to “in-specie” assets to improve tax outcomes when entering or leaving the structure.
Both structures are regulated by the Australian Securities & Investments Commission (ASIC).
Managed Discretionary Accounts
Managed Discretionary Accounts are a financial service. There is contract between the investor (you) and the provider (Nucleus).
Managed Discretionary Accounts offer a higher degree of customisation.
Nucleus use this to offer “tilts” where investors can add additional exposure or themes to their portfolio. For example, an investor could add more quality stocks or an additional exposure to stocks in the Artificial Intelligence sector.
There is also the ability within Managed Discretionary Accounts to better control tax outcomes for individual investors.
The provider (Nucleus) of Managed Discretionary Accounts needs to maintain additional licencing through the Australian Securities & Investments Commission.
The provider needs to stay in more frequent contact with the clients in a Managed Discretionary Account.
Separately Managed Accounts
Separately Managed Accounts are an investment product (not a service).
The portfolio manager provides the investment service to the Responsible Entity, the Responsible Entity provides the investment product to the investor. They have a Product Disclosure Statement rather than a contract.
There is an additional layer of compliance oversight in a Separately Managed Account. The Responsible Entity has legal responsibility to check that portfolios are invested according to the investment mandate. The oversight is not about investment performance, but about compliance. i.e. if the investment strategy is to invest in government bonds, the issuer will check to make sure that the portfolio manager doesn’t buy (say) Bitcoin.
Deciding Which Is Best for You
For Nucleus products, the primary trade-off is between:
- Lower fees and more investment flexibility and features in a Managed Discretionary Account
- More compliance oversight and reporting in a Separately Managed Account
Part of the equation will include an assessment of the amount invested. For Nucleus products, Managed Discretionary Accounts are much cheaper below $200,000.
