Advisers wary of property syndicate DDO referrals

Financial advisers have expressed concern at the manner in which property syndicators are being impacted by the Australian Securities and Investments Commission’s (ASIC’s) approach to property syndicators under the upcoming Design and Distribution Obligations (DDO) regime.

With ASIC’s approach, as outlined in RG 274, making it clear that property syndicators will need to make sure that their products are appropriate for clients within Target Market Determinations (TDM), advisers are concerned at how this might ultimately impact them given their own obligations under the new DDO regime.

Advisers have pointed out that property syndicates are regarded as being usually the preserve of sophisticated investors and suggested they would be reluctant to give advice to relatively inexperienced retail investors referred to them by property syndicators.

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The concern amongst advisers has come as they receive increasing numbers of notifications from platform providers about how they intend to approach the new DDO regime and the obligations this will impose on advisers.

Amongst the first to be received by advisers this month was a communication from Westpac-owned Asgard which outlined advisers’ obligations as distributors under the new regime.

Asgard has signaled 5 October as the date by which intends to make all Target Market Determinations available online.

But the Asgard documentation also made clear the challenge for property syndicators in terms of their obligations as issuers of financial products including that issuers must design financial products that are likely to be consistent with the likely objectives, financial situation and needs of clients for whom they are intended.

It also states that issuers must “monitor client outcomes and review products to ensure that clients are receiving products that are likely to be consistent with their likely objectives, financial situation and needs”.

Advisers point out that in most instances, this can only be achieved via the use of a financial adviser.

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If this stops advisers from recommending property syndicates to inexperienced retail investors, that sounds like a pretty good outcome.

Let's agree that this type of investment is highly specialised and needs not only a high end adviser but also high end clients who understand all the risks and potential rewards associated with this type of investment. Westpoint clearly showed what happens when inexperienced investors are sold complex products by what often turned out to be an inexperienced sales team. Your sentence: "they would be reluctant to give advice to relatively inexperienced retail investors referred to them by property syndicators" seems clear enough. How this will all pan out we'll find out in a few years, just like with insurance and so called "affordable advice".

Exactly. This stuff should be recommended to inexperienced retail investors... Especially when it normally takes up a large part of asset allocation and isn't liquid etc...

Sounds like a good outcome.

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