Planners face tough distribution rules

23 July 2018

There will be no excuse for the those manufacturing financial products not knowing if their products have resulted in complaints made to financial planners or others, under the Government’s proposed new Design and Distribution rules.

Alongside the announcement of a further round of stakeholder consultations on the new Australian Securities and Investments Commission (ASIC) product intervention powers, the revised legislative draft for the new laws has revealed that distributors will be required to provide information about the number of complaints about the product.

The latest explanatory memorandum around the legislation makes clear that financial planning firms and other people responsible for making offers or giving advice to potential investors will also have significant obligations.

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The new legislation would see financial planners or their licensees obliged to take “reasonable steps” to make themselves aware of a product’s appropriateness or otherwise with respect to a target market and the status of a manufacturer’s product and any review of that product.

The explanatory memorandum said the new law was using a risk management approach to determine what satisfied the requirement of “reasonable steps” and that the term meant those steps “reasonably able to be taken so that retail product distribution conduct is consistent with its target market determination”.

It said this included the likelihood of such dealings or advice resulting in a person acquiring a product otherwise than in accordance with its target market determination.

Commenting on the further round of stakeholder consultation on the new legislation, the Minister for Revenue and Financial Services, Kelly O’Dwyer said the Government had carefully considered feedback and made amendments to the legislation.

She said the Design and Distribution Obligations and the Product Intervention Power were about ensuring a customer-centric approach to product design, marketing and distribution.

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The “product” landscape is pretty benign these days, some specialist annuities and perhaps the new CIPR’s are probably the most complex. Save for that, a retail super fund or insurance policy is pretty black and white these days. This legislation would have been wonderful during the agri-years, some of those projects would have been wonderful but the same government that issued the product rulings took them away.

First off, it's the responsibility of the adviser to consider the appropriateness of any product on their APL and not all clients have the same risk appetite nor do they have the same time frame for investment.
Clearly research information provides a window of opportunity based upon investment philosophy and past investment history as to what is possible but with no future guarantees
The issue at hand is to preserve capital and in a low interest environment, it's up to the client to say whether they want to take on more risk in order to counter the effects of low returns in a low interest rate and low inflation environment.
We are all clever with the benefit of hindsight after the event.
The problem is most clients want a 10.0% return on their investment, pay no tax and don't want any risk.
Clearly in a perfect investment world this is all possible but unfortunately what clients and the government/regulators don't get is, that financial planning is not an exact science otherwise no one including product manufacturers would ever get things wrong.
It's naive and stupid to think otherwise.

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