FPA questions DDO ‘fit-for-purpose’

There should be design and distribution obligation (DDO) relief for financial planners providing personal financial advice to retail clients, the Financial Planning Association (FPA) of Australia believes.

The FPA’s submission on the DDO regime that comes into force on 5 October, 2021, said the reporting and record keeping requirements in the DDO regime looked at product regulation from the product perspective and the potential risk/harm posed to retail clients, as identified under the total market determination (TMD), as a whole.

However, when providing personal advice, planners considered the appropriateness of each product recommendation in relation to the individual client’s circumstances and as one part of that client’s broader financial plan.

“We are disappointed that it does not address the unnecessary and unworkable record keeping and reporting obligations the DDO Act places on financial planners,” the FPA said.

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“…Applying the DDOs to planners ignores the higher standards of the financial advice regime and brings into question whether some elements of the regime are fit-for-purpose. For example, the application of the DDOs to financial planners ignores the requirement that planners must ensure their advice must be appropriate for them. This is a higher standard than the aim that products are ‘likely to be’ appropriate for consumers.”

The FPA said as a planner’s product recommendation was based on the client/product assessment and not the product TMD, the client might fall outside the issuer’s target market for that product.

“Hence, reports from financial planners about whether a product presents harm or risks to consumers invested outside the TMD will likely taint the data about the product,” it said.

“Imposing additional reporting and record keeping requirements that do not naturally ‘fit’ in existing advice processes and reporting, would create an additional onerous administrative burden for planners as the conclusions a planner draws about the risks and appropriateness of a product will differ based on each client’s circumstances.”

The FPA requested the corporate regulator be directed to make a notifiable instrument that:

• Exempted financial planners who provided ‘excluded conduct’ and ‘excluded dealings’ from sections 994F(3)(b), 994F(c), and 994F(6) of the DDO Act – the obligations to report to the product provider (and associated record keeping requirement):
  
  • The “reasonable steps the regulated person has taken to ensure consistency with the target market determination”;
  • Information specified in the TMD; and
  • A ‘significant dealing’ that was not consistent with the TMD.
• Restricted product providers ability to impose additional requirements on ‘excluded conduct’ and ‘excluded dealings’ via sections 994B(5)(h), 994F(5) and s994F(c), thereby obviating their responsibilities by passing them on to financial planners.

The submission noted the regime did not take into account the fact that planners considered a much broader set of facts about each client, as required under the law.