The Bank of England released a discussion paper and scenarios for the finance sector to consider the risks of climate change (whatever the cause). They conclude that financial assets are at risk and these risks need to be recognised and accounted for.
Household Net Worth Grew 3% In Last Quarter: ABS
Thanks to rises in the valuation of shares, and a bounce in property values, on paper households are now more wealthy, with the value of total assets growing faster than borrowing, and aided by overall population growth. Households were net lenders of $54.3b, depositing $23.8b and accruing $16.1b in net equity in reserves of pension funds (superannuation).
According to data released by the Australian Bureau of Statistics, household net worth (wealth) increased $318.0b (3.0%) in September quarter 2019, driven by a $322.3b increase in total assets, partly offset by a $4.3b increase in total liabilities.
The increase in total assets was driven by residential land and dwellings. The value of residential land and dwellings increased 2.9%, driven by total holding gains of $174.4b. This represents the first quarter of real holding gains on residential land and dwellings following six consecutive quarters of losses.
Household wealth per capita has increased $10,698.6 to $428,573.5, the largest increase since December 2016. With quarterly growth in household wealth at its highest in nearly two years, through the year growth in household wealth has made a recovery from the negative results seen over the 2018-19 year.
The value of household financial assets increased 2.3%, a moderate result relative to the record growth in the previous two quarters. This reflects smaller holding gains on financial assets, while net financial transactions were steady. While holdings in pension fund assets are at a high of 55.6% of total household financial assets, the share of deposits remain at a nine year low of 19.5%. This is in line with record low interest rates as the RBA board reduced the cash rate a further 25 basis points at its July meeting, following a 25 basis point cut in June.
Graph 1. Household net worth through the year growth
The growth in financial asset was driven by superannuation assets, which are made up of reserves of pension funds and unfunded superannuation claims. Reserves of pension funds increased $68.3b, of which $52.2b were due to positive revaluations as 77.1% of reserve assets were invested in shares, and therefore influenced by the performance the Australian stock market.
Household liabilities grew 0.2% and is the softest growth since March quarter 1993. Total household sector liabilities were $2,471.7b, 92% of which were long term loans. The growth in long term loans of 0.3% was due to weakness in owner occupier loans, and falls in investor, unincorporated business and fixed term loans.
Long term loans by authorised deposit taking institutions (ADIs) and securitisers made up $3.3b of the transactions of the long term loans. Net transactions in long term loans from rest of world (-$2.0b) detracted from growth. Short term loan borrowing by households decreased 2.3%, with net transactions of -$18b driven by households paying off their short term loans with ADIs. Net transactions in short term loans borrowed from ADIs is the strongest negative result for a September quarter in five years.
Household transactions in net worth were $61.8b. Financial transactions were the largest component contributing $54.1b, driven by a net acquisition of financial assets of $53.5b, and partly offset by a net incurrence of liabilities of -$0.6b. Net capital formation contributed $7.7b to household transactions in net worth and was driven by land and dwellings ($9.4b), partly offset by other non-financial assets (-$1.7b).
Household debt to assets ratios
The household debt to assets ratio gives an indication of the extent to which the overall household balance sheet is geared. The household debt to assets ratio decreased from 18.9 to 18.5, as growth in household assets (2.5%) outgrew household debt (0.2%).
The mortgage debt to residential land and dwellings ratio decreased from 29.2 to 28.6, indicating the value of residential land and dwellings outgrew mortgage debt. The decrease in the ratio is driven by the strongest increase in the value of residential land and dwellings since December quarter 2016, combined with the weakest growth in mortgage debt since September quarter 2013.
The household debt to liquid assets ratio reflects the ability of households to quickly extinguish debts using liquid assets (currency and deposits, short and long term debt securities, and equity). The household debt to liquid asset ratio decreased from 112.0 to 110.0, as growth in household liquid assets (2.1%) outweighed growth in household debt (0.2%). Growth in liquid assets was driven by increases in household deposit assets which contributed 1.1 percentage points to the 2.1% increase. Growth in household debt was weak, driven by a 0.3% increase in long term loan borrowing.
Graph 2. Mortgage debt to residential land and dwellings ratio breakdown
The wealth effect
Household net saving increased from -$3.3b to $10.7b in September quarter 2019. The $13.9b increase was drivenby
an increase in gross disposable income ($45.5b), partly offset by
increases in final consumption expenditure ($3.6b) and consumption of
fixed capital ($0.3b). The increase in gross disposable income was
driven by a $11.9b increase in dividends received and a $23.5b decrease
in income tax payable.
Household gross disposable income adjusted for other changes in real net
wealth (wealth effect) increased from $467.6b to $529.2b and household
net saving adjusted for other changes in real net wealth increased from
$165.1b to $222.8b. The increases in gross disposable income and
household net saving when adjusted for other changes in net wealth are
due to total real holding gains of $181.1b, the strongest result since
March quarter 2017.
Graph 3. Net saving plus other changes in real net wealth, original
Demand for credit
Demand for credit ($42.8b) continued to slow this quarter, following 2018-19 which had the weakest annual demand for credit since 2012-13. Demand for credit this quarter was driven by the public sector, with subdued demand by the private sector and households. Households’ demand for credit (-$1.3b) was negative for the first time since March quarter 1993. Net bond issuances by National general government were $12.1b, while state and local general government borrowed $8.9b. While other private non-financial corporations borrowed $10.4b, equity raising by the sector was only $1.0b.
Demand for credit by household continues to be impacted by the slowing growth in loans for residential property, reflecting the weak housing market. Households transactions in loans were negative for the first time since December quarter 2014, with $12.2b of household loans being securitised. Growth in owner occupier loan balances continued to soften, while investor loans balances fell. Household short term loan balances also continued to drop.
Demand for credit by other private non-financial corporations was the second weakest demand in 7 years ( first being December 2018). This is in line with the lowest equity raising by the sector since December quarter 2012. National general government’s demand for credit was the highest since June quarter 2017, corresponding with a strong increase in net bond issuances this quarter. State and local general government’s demand for credit was the highest since June quarter 2012, driven by loans from central borrowing authorities, with the sector’s credit demand over the past year the strongest since 2012.
Graph 1. Demand for credit
Valuations increases in bonds and equities drive credit market outstanding
Despite subdued demand for credit over the past year, significant
valuation increases have pushed through the year growth in credit market
outstanding of non-financial domestic sectors to 5.7%. Strong price
increases in the Australian stock market and falling bond yields,
particularly over the last 3 quarters, were the main contributors to the
growth.
Credit market outstanding rose 1.3% this quarter, following last
quarter’s 2.3% increase. There were significant valuation increases in
the equity of other private non-financial corporations and government
bonds, reflecting the rise in the Australian stock market and falling
bond yields during the quarter.
Graph 2. Credit market outstanding
National investment falls in September quarter
National investment decreased by $5.1b to $110.5b this quarter.
Graph 1. Total capital formation, current prices
The general government sector invested $16.7b over the quarter, down
from $23.8b in June. A fall is typical for the September quarter.
Household investment decreased by $0.5b, falling to $38.4b overall. This
was driven by declines in machinery and equipment and dwelling
investment, partly offset by an increase in ownership transfer costs.
Private non-financial corporations investment increased by $3.5b this
quarter to $46.5b. This was driven by a build up of inventories leading
into the Christmas period.
Australia continues to be a net lender
National net lending was $7.7b in September quarter 2019 as gross saving of $119.1b was used to fund national investment.
During the quarter, residents acquired $19.7b of shares and other equity
issued by the rest of world, with non-money market financial investment
funds and pension funds acquiring $11.3b and $8.2b respectively. The
rest of the world borrowed $20.9b in loans from domestic authorised
deposit taking institutions (ADIs).
ADIs settled $20.9b of their derivative contracts with rest of the
world. The rest of the world acquired $17.4b of shares and other equity
issued by residents.
Graph 2. Net financial investment (net lending (+) / net borrowing (-))
Non-financial corporations were net borrowers of $7.7b, driven by loan
borrowings ($17.6b) and issuance of equity ($4.8b) partly offset by
maturities of $3.7b in debt securities.
The general government was a net borrower of $17.9b, driven by issuances
of long term debt securities ($11.8b) and loan borrowings ($9.3b).
Households were net lenders of $54.3b, depositing $23.8b and accruing
$16.1b in net equity in reserves of pension funds (superannuation).
Unemployment Lower To 5.2% In November 2019: ABS
Australia’s trend unemployment rate decreased by less than 0.1 percentage points to 5.2 per cent in November 2019, according to the latest information released by the Australian Bureau of Statistics (ABS) today.
ABS Chief Economist Bruce Hockman said: “In November 2019, the trend unemployment rate decreased slightly to 5.2 per cent, the same level it was six months ago.”
“Over the past six months, the trend unemployment rate, participation rate and employment to population ratio have all remained relatively stable,” said Mr Hockman.
Employment and hours
In November 2019, trend monthly employment increased by around 17,000 people. Full-time employment increased by around 8,000 people and part-time employment increased by around 9,000 people.
Over the past year, trend employment increased by around 269,000 people (2.1 per cent), which continued to be above the average annual growth over the past 20 years (2.0 per cent). Full-time employment increased at the same rate as the past 20 years (1.6 per cent), and part-time employment (3.2 per cent) was above the average annual growth over the past 20 years (3.0 per cent).
The trend monthly hours worked increased by 0.1 per cent in November 2019 and by 1.6 per cent over the past year. This was slightly below the 20 year average annual growth of 1.7 per cent.
Underemployment and underutilisation
The trend monthly underemployment rate remained steady at 8.4 per cent in November 2019, an increase of 0.1 percentage points over the past year. The trend monthly underutilisation rate also remained steady at 13.6 per cent in November 2019, an increase of 0.3 percentage points over the past year.
States and territories trend unemployment rate
The monthly trend unemployment rate remained steady in Victoria, Queensland, South Australia and the Australian Capital Territory in November 2019. The unemployment rate increased in New South Wales, Western Australia and the Northern Territory, and decreased in Tasmania.
Over the year, unemployment rates fell in Western Australia and the Australian Capital Territory. The unemployment rate increased in all other states and the Northern Territory, except Tasmania where the rate was the same as it was 12 months ago.
Over the past year, trend employment increased by 268,900 people (or 2.1%), which was above the average annual growth rate over the past 20 years of 2.0%. Over the same 12 months, the trend employment to population ratio, which is a measure of how employed the population (aged 15 years and over) is, increased by 0.3 percentage points (pts) to 62.6%.
Dynamic Market changes
Trend employment increased by 17,400 people (0.13%) between October and November 2019. This was below the monthly average growth rate over the last 20 years of 0.16%.
Underpinning these net changes in employment is extensive dynamic change, which occurs each month in the labour market. In recent months there has been more than 300,000 people entering and leaving employment. There is also further dynamic change in the hours that people work, which results in changes in the full-time and part-time composition of employment.
Trend full-time employment increased by 8,300 people between October and November 2019, and part-time employment increased by 9,000 people. Compared to a year ago, there were 140,800 more people employed full-time and 128,100 more people employed part-time. This compositional change has led to an increase in the part-time share of employment from 31.4% to 31.8%.
The trend estimate of monthly hours worked in all jobs increased by 2.3 million hours (0.1%) to 1,782.8 million hours in November 2019. Over the past year, monthly hours worked in all jobs increased by 1.6%, below the 2.1% increase in employed people. In November, the average hours worked per employed person was around 137.5 hours per month or around 31.7 hours per week.
The trend unemployment rate decreased by less than 0.1 pts to 5.2% in November 2019. The number of unemployed people decreased by 1,200 in November 2019 to 716,300 people, and by 44,000 people since November 2018.
The trend participation rate remained steady at 66.1% in November 2019, and was 0.5 pts higher than in November 2018. The female participation rate remained steady at 61.2% and the male participation rate remained steady at 71.1%.
The labour force includes the total number of employed and unemployed people. Over the past 12 months, the labour force increased by 312,900 people (2.3%). This rate of increase was above the rate of increase for the total Civilian Population aged 15 years and over (1.6%).
The trend participation rate for 15-64 year olds, which controls (in part) for the effects of an aging population, remained steady at 78.7%. The gap between male and female participation rates in this age group was less than 10 pts, at 83.2% and 74.2% respectively, continuing the long term convergence of male and female participation.
The trend participation rate for 15-24 year olds (who are often referred to as the “youth” group in the labour market) remained steady at 68.1%. The unemployment rate for this group remained steady at 11.7% from October to November 2019, and has increased by 0.3 pts since November 2018.
Seasonally adjusted data
The seasonally adjusted unemployment rate decreased by 0.1 percentage points to 5.2 per cent in November 2019, while the underemployment rate decreased by 0.2 percentage points to 8.3 per cent. The seasonally adjusted participation rate remained steady at 66.0 per cent, and the number of people employed increased by around 40,000.
The net movement of employed in both trend and seasonally adjusted terms is underpinned by around 300,000 people entering and leaving employment in the month
Rotational Data
In original terms, the incoming rotation group in November 2019 had a lower employment to population ratio than the group it replaced (62.5% in November 2019, compared to 63.2% in October 2019), and was lower than the sample as a whole (62.8%). The incoming rotation group had a lower full-time employment to population ratio than the group it replaced (42.5% in November 2019, compared to 43.8% in October 2019), and was lower than the sample as a whole (42.9%).
The unemployment rate of the incoming rotation group was higher than the group it replaced (5.2% in November 2019, compared to 4.8% in October 2019) and was higher than the sample as a whole (4.8%). The participation rate of the incoming rotation group was lower than the group it replaced (66.0% in November 2019, compared to 66.4% in October 2019) and higher than the sample as a whole (65.9%).
In looking ahead to the December 2019 estimates, in original terms, the outgoing rotation group in November 2019, that will be replaced by a new incoming rotation group in December 2019, had a lower employment to population ratio in November 2019 (62.3%) compared to the sample as a whole (62.8%). The outgoing rotation group in November 2019 had a lower full-time employment to population ratio (42.7%) than the sample as a whole (42.9%).
The outgoing rotation group had a higher unemployment rate in November 2019 (4.9%) compared to the sample as a whole (4.8%). The participation rate of the outgoing rotation group in November 2019 (65.5%) was lower than the sample as a whole (65.9%).
APRA Publishes Executive Accountability Statements
The Australian Prudential Regulation Authority (APRA) has published a document outlining its governance arrangements, along with accountability statements for its senior executives.
The paper, titled Governance and Senior Executive Accountabilities, describes APRA’s internal governance and accountability arrangements and is supported by individual accountability statements for senior executive roles and an accountability map. The accountability statements cover all four APRA Members, as well as APRA’s six Executive Directors, APRA’s Chief Risk Officer and Chief Internal Auditor.
Today’s release responds to recommendation 6.12 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry: that “each of APRA and ASIC should internally formulate and apply to its own management accountability principles of the kind established by the Banking Executive Accountability Regime (BEAR).”
APRA accepted the recommendation and committed to meeting it by 31 December 2019.
APRA’s Governance and Senior Executive Accountabilities document is available on the APRA website at: https://www.apra.gov.au/governance-and-senior-executive-accountabilities.
A High Volt-age Bolt of Banking Lightening!
Steve Weston, fresh back from 4 years with Barclays in the UK was listening to the May 2017 budget speech, and his world changed. The budget contained a plethora of banking reforms, including Open Banking, big bank levies, the BEAR (cultural reform) and the potential to allow new Fintech bank start-ups an on-ramp in terms of regulation and capital to foster innovation and competition in the banking sector.
The announcements opened the door on the potential to create a digital bank and platform business, akin to Starling Bank in the UK. Starling was founded in 2014 by industry-leading banker Anne Boden, who not only recognised how technology could transform the way people manage their money and serve customers in a way that traditional banks hadn’t, but also how a platform business can accelerate scale. They have since surpassed one million accounts, raised £263 million in backing and were voted Best British Bank two years running. Their customers also rate them Excellent on Trustpilot.
Throughout 2017 Steve developed the concept, built a team and by January 2019, Volt Bank was Australia’s first neobank to receive an unrestricted ADI licence. It has now begun on-boarding sections of its 40,000-strong waitlist and is announcing a ‘no catches’ ongoing base interest rate of 2.15 per cent on savings, ahead of a public launch planned for early 2020. Volt’s ‘no catches’ interest rate is not subject to an introductory period, or conditions that lead to many consumers not actually receiving a higher rate, like minimum monthly deposits or a minimum number of transactions.
Volt’s unique digital solution was designed to help consumers ‘save often’ and ‘spend wisely’ after CEO & Co-Founder, Steve Weston, noted a distinct absence of personal finance products that actually help to make Australian consumers better off.
“What I find troubling is banks saying they are putting customers at the heart of what they do but that isn’t reflected in actual practice. As an example, banks should say what percentage of their savings account customers get the higher advertised interest rates rather than the often very low base rates. The same applies to home loan interest rates. Why is it that new customers get a better deal than loyal customers?
“Banking needs to be done in a better way. Volt’s first product, our savings account, offers a highly competitive rate without any conditions. I challenge other banks to do the same.
“We are taking our time to build every product and feature in a prudent fashion, including by seeking feedback through our co-creation app, Volt Labs. When we launch to the public in 2020, Volt will be a viable, well-understood, and trusted option for everyday Australians,” concluded Mr. Weston.
So, what’s under the hood?
Well first there are no branches, but it has also been built digital first. and at the heart of the concept is the desire to truly assist customers reach the outcomes they’re seeking and is aiming to help shift behaviours. For example, the Volt app will also support savings discipline, helping to create a savings habit. This is decidedly NOT a product push.
Customers can onboard in less than 3 minutes and Volt will deliver a customer experience not provided by incumbent banks.
But Volt is also a platform, where providers of digital finance services can connect. Indeed, Volt already has an agreement with PayPal (after Citi, Barclays etc). Via their API they plan to offer best in class digital services on their platform.
They plan to grow via what Steve called Viral Advocacy and the 40,000 wait-list is part of that plan.
And Volt is a fully fledged ADI (in APRA speak) and so can offer deposit and savings accounts protected by the Government’s Financial Claims Scheme up to $250k, just like other Australian licenced banks.
They have a road map already laid out ahead, tackling other customer needs, and whilst initial funding for the venture has come mainly from high-net worth investors, they will be tapping a broader investor base to raise the capital they will need to commence lending quite soon.
So, I see this as more than just another upstart Fintech. Volt has the pedigree, the vision and the capability to become a significantly disruptive player in the Australian market. And frankly, as their Deposit rate is no holds barred higher than others in the field, it will be interesting to see how the incumbents respond. But this could just be the start of the long awaited and needed banking revolution here. Perhaps like Aussie Home Loans disrupted mortgage lending a generation ago?
Things could get very interesting indeed!
Note: DFA has no commercial relationship with Volt Bank. This article is one in our series on digital banking disruption – Fintech Spotlight.
The Man Of Titanium And The Lunatics In The Asylum”
I discuss the intersection between politics, economics and housing with journalist Tarric Brooker, who uses the handle @AvidCommentator on Twitter.
Given the current political ideology, are we likely to see any change of trajectory given some of the issues we are facing into? Will the surplus remain sacrosanct?
Bank of England On Stress Testing The Financial Stability Implications Of Climate Change
According to the Bank of England, climate change creates risks to both the safety and soundness of individual firms and to the stability of the financial system. These risks are already starting to crystallise, and have the potential to increase substantially in the future. There is a pressing need for central banks, regulators and financial firms to accelerate their capacity to assess and manage these risks.
So, the Bank of England has published a discussion paper which sets out its proposed framework for the 2021 Biennial Exploratory Scenario (‘BES’) exercise.
The objective of the BES is to test the resilience of the largest banks and insurers (‘firms’) to the physical and transition risks associated with different possible climate scenarios, and the financial system’s exposure more broadly to climate-related risk.
They say, conducting a climate stress test poses distinct challenges compared to conventional macrofinancial or insurance stress tests. To ensure it is effective in light of these challenges, the Bank is using this discussion paper to consult relevant stakeholders on the design of the exercise. This includes financial firms, climate scientists, economists, other industry experts, and informed stakeholder groups.
Whilst climate-related risks will materialise over decades, actions today will affect the size of those future risks. It is therefore important that firms, and other stakeholders such as the Bank, continue to develop innovative approaches to measure climate-related risks before it is too late to ensure resilience to them. The BES will use exploratory scenarios to size these future risks and to explore how firms might respond to them materialising, rather than testing firms’ capital adequacy.
The key features of the BES are:
- Multiple Scenarios that cover climate as well as macro-variables: to test the resilience of the UK’s financial system against the physical and transition risks in three distinct climate scenarios. These range from taking early, late and no additional policy action to meet global climate goals.
- Broader participation: both banks and insurers are exposed to climate-related risks, and the action of one will spill over to affect the other. For insurers, this exercise builds on the scenarios developed for this year’s insurance stress test.
- Longer time horizon: is needed as climate-related risks crystallise over a much longer timeframe than conventional risks. The BES proposes a modelling horizon of 30 years. This is because climate change, and the policies to mitigate it, will occur over a much longer timeframe than the normal horizon for stress testing. To make these scenarios credible and tractable, the Bank proposes that the BES examine firms’ resilience using fixed balance sheets, focusing on sizing the risks and the scale of business model adjustment required to respond to these risks, rather than testing the adequacy of firms’ capital to absorb those risks.
- Counterparty-level modelling: a bottom up, granular analysis of counterparties’ business models split by geographies and sectors is proposed to accurately capture the exposure to climate-related risks.
- Output: the Bank will disclose aggregate results of the financial sector’s resilience to climate-related risk rather than individual firms.
The Governor Mark Carney said: “The BES is a pioneering exercise, which builds on the considerable progress in addressing climate related risks that has already been made by firms, central banks and regulators. Climate change will affect the value of virtually every financial asset; the BES will help ensure the core of our financial system is resilient to those changes.”
Sarah Breeden the Executive Director sponsor for climate change said “None of us can know exactly how climate change will unfold, but we do know that it will create risks to the financial system. I am excited that this ground-breaking exercise will for the first time allow us to quantify this risk and so determine the actions we need to take today if we are to minimise these future risks.”
The Bank is consulting on the design of the exercise and welcomes feedback on the feasibility and the robustness of these proposals from firms, their counterparties, climate scientists, economists and other industry experts by 18 March 2020. The final BES framework will be published in the second half of 2020 and the results of the exercise will be published in 2021.
The Banks concludes, there are many challenges involved in designing such an exercise and this proposal seeks to balance various trade-offs. These include providing a comprehensive description of the potential risks while also creating a tractable exercise for firms, and providing sufficient detail in the scenarios to allow results to be aggregated consistently while also providing scope for firms to assess the risks in a granular way.
Comparing Canada And Australia
I discuss the latest with Formafist in Canada and we compare the two markets in terms of property and the broader economy. How has 2019 been and what is 2020 looking like? Some amazing parallels, and stark differences….
This segment covers the Canadian market, and the other half of the discussion, covering the Australian market is available on Daniel’s channel here:
- What’s been happening to house prices and sales volumes over 2019, what’s changed in the year
- What’s happened to foreign buyers?
- What’s happening to Investors?
- Any news on building construction, quality, new approvals?
- How about the broader economy, and interest rates?
- Biggest surprise of the year
- Looking ahead, thoughts on next year,
- Will home prices, and volumes go up or down, (what might determine that)
- Will interest rates be cut or raised by central banks?
- What’s the biggest thing to watch for… in each market…
DFA Live Show From 17th December 2019
In this trimmed high quality recording of our live event, we discuss the latest financial and property data, examine our latest scenarios, and discuss the trends ahead. We also answer a range of questions posed by our viewers live. The unedited original stream with live chat, is available to view (starting at 0:30) below:
AMP Financial Planning Ceases MDA Services
AMP Financial Planning Pty Ltd (AMPFP) ceased providing managed discretionary account (MDA) services on 10 December 2019 following the imposition of tailored licence conditions by ASIC.
In March 2019, following a surveillance of AMPFP’s MDA services and advice business, ASIC granted AMPFP’s application to vary its Australian financial services (AFS) licence to provide MDA services, subject to some tailored licence conditions (19-078MR). The tailored conditions formalised commitments made by AMPFP, in response to ASIC’s concerns, to improve monitoring and supervision of its discretionary investment services and related financial advice.
Under the tailored licence conditions, a Senior Executive of AMPFP was required to provide an acceptable attestation to ASIC by 30 September 2019 confirming that AMPFP had complied with and was complying with the tailored conditions. This was to ensure that all of the required improvements to monitoring and supervision practices had been implemented and were operating effectively.
AMPFP did not provide ASIC with an acceptable attestation in relation to its provision of MDA services. The attestation provided by AMPFP had exceptions and ASIC informed AMPFP that the attestation was not acceptable to it, and AMPFP ceased providing MDA services in accordance with its licence conditions.
Background
MDAs create particular risks for retail clients because when a client enters into a contract with an MDA provider, they give the provider authority to make investment decisions on their behalf on an ongoing basis without seeking the client’s prior approval.
The risks increase if the person recommending the MDA service and making or influencing the investment decisions are the same because the clients may not be receiving impartial advice about the decision to enter into or remain in the MDA service. ASIC expects AFS licensees to consider the risks involved with the financial advice and investment activities of their representatives in their monitoring and supervision practices.