DDO useless for those receiving personal advice: IMAP
All Design and Distribution Obligations (DDO) obligations should be terminated for providers of personal advice and for product issuers issuing to retail investors receiving personal advice, according to the Institute of Managed Account Professionals (IMAP).
That was a key recommendations outlined in its submission to the Quality of Advice Review, with IMAP noting it would significantly reduce costs for advice AFSLs, platforms and product issuers without affecting the obligations of issuers dealing directly with retail investors.
“It is questionable whether the DDO regime will ever achieve any useful outcome of any sort in relation to clients who make investments as a result of receiving personal advice,” it said.
“The legislation partially exempts advisers from its provisions – on the reasonable grounds that the obligations relating to the provision of advice include an ‘appropriateness’ test - but requires that they ensure there is a TMD [target market determination], captures them in a requirement to report significant dealings which even Treasury cannot define, and requires them to report complaints.
“It imposes on issuers a set of compliance burdens which may be appropriate for products such as credit cards, car insurance or investment products sold directly to investors but contribute nothing to improving the quality of advice.”
The submission argued a systematic process, with defined objectives, delivered in a process-based manner would almost always deliver better outcomes for the client and the adviser than the way in which most advice was provided currently - through the Statement of Advice (SoA)/ Records of Advice (RoA) process.
Toby Potter, IMAP chair, said the terms of reference for the review had an implicitly poor understanding of advice.
“They read as though advice is primarily transactional – like applying for a mortgage – rather than relational – a 10 to 20-year ongoing service based on long-term goals and as though the aim of advice is the production of a document rather than the achievement of objectives that are specific to the client and take time,” he said.
“In our submission we show, referencing studies undertaken by Aequitas Investment Partners and Philo Capital Advisers, how quality can be measured in concrete terms of the likelihood of achieving a client’s specific goals. We also aim to help with a definition of how quality of advice should be assessed in more qualitative ways, including:
• Articulation and clarification of the client’s goals;
• The probability of success of achieving those goals;
• Timeliness of delivery;
• Accommodation of client constraints;
• Capacity to address multiple goals concurrently;
• Cost /value;
• Risk appropriateness; and
• Continued relevance and delivery through time.
“The submission is directed as much at ASIC as the review team itself – to build a better understanding in the regulator of the potential of managed accounts.”
IMAP made several other recommendations including calling for the elimination of the fee consent requirements for platforms and that ASIC meet with industry bodies and participants to explain the basis for its allocation of costs.
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