New Design and Distribution Obligations (DDO) have arrived
Breaking down the new Design and Distribution Obligations (DDO)
On 5 October 2021, the new DDO came into effect.
The obligations apply to issuers and distributors of financial products to retail clients.
You can also refer to RG 274 by clicking here.
What is the DDO?
For issuers, the DDO requires them to provide a Target Market Determination (TMD) for a financial product. The TMD is a publicly available document which explains (among other things) the class of retail clients to whom the product is intended.
For distributors, the DDO requires them to take reasonable steps that would result in, or be reasonably likely to result in, retail product distribution being consistent with the TMD (‘reasonable step obligation’). Distributors must also comply with certain reporting requirements discussed below.
How does the DDO apply to financial advisers specifically?
Licensees and their authorised representatives are distributors for the purpose of the DDO. However, the legislation specifically excludes ‘personal advice’ from the ‘reasonable step obligation’. The rationale is that, in providing personal advice, a financial adviser must already meet the best interest duty (and must therefore ensure that any financial product advice is appropriate under their existing obligations).
In ASIC’s view, the TMD ‘should be considered by financial advisers in providing (personal) advice and meeting their best interests duty (RG 274).’ In practical terms, when providing personal advice, Advisers should read and be familiar with the TMD for each financial product being recommended. That is, it should be part of the usual enquiry undertaken in making any financial product recommendation.
Financial Advisers will also need to meet certain reporting requirements, including:
- Complaints: reporting to the product issuer about whether any complaints were made in relation to the financial product and, if any such complaints were received, the number of complaints. They must report this information as soon as reasonably practicable but in any case no later than 10 business days after the end of the reporting period.
- Significant dealings: report to the product issuer of any significant dealings that are not consistent with the TMD as soon as reasonably practicable but in any case no later than 10 business days.
Tools to help
Plutosoft will allow you to:
- Product preferences: Firms can create their own Product Preferences questionnaire. This can be made available to clients to complete on the Client Hub Portal. This questionnaire will help to define the client’s preferences and to ensure that any product selected is matched against the client’s agreed preferences.
- DDO compliance record: We will shortly be releasing a new compliance record to capture complaints or significant dealings in relation to a financial product. Just like any other compliance record, the Plutosoft workflow system will allow you to build this into an existing process and automatically populate the compliance record as part of a workflow task.
- Templates: Firms may consider adding a new paragraph in the Supporting Reasons section of their SoA template explaining how any product proposed aligns with the Target Market Determination.