ASIC cites failure to check advice delivery on DDO

Financial service products manufacturers who use financial advisers to distribute their products had taken “minimal steps” to check customers actually received advice before acquiring the product, according to the Australian Securities and Investments Commission (ASIC).

In a new report (795) dealing with the Design and Distribution Obligations – Compliance with reasonable steps, ASIC pointed to progress being made but also to continuing short-comings.

It provided as an example of the improvements that there had been a reduction in mass marketing of high-risk products and no instances of issuers asking consumers to self-certify that they are in the target market.

However, it said issuers still needed to comply with the reasonable steps obligation and said it had observed:

• limited due diligence arrangements to assess and monitor third-party distributors’ ability to distribute a product in accordance with the TMD
• some issuers of high-risk products relying on broad search terms in online marketing
• reliance on poor-quality questionnaires that did not seek to understand a consumer’s attributes and had poor design features such as prompts with ‘correct’ responses, and
• limited monitoring of consumer outcomes to inform product governance arrangements and future distribution practices.

“Where personal advice was a selected distribution method, we observed that issuers took minimal steps to check customers actually received the advice before acquiring the product,” the ASIC report said.

“We acknowledge that in some circumstances an issuer will be unable to review the personal advice (e.g. if there are privacy concerns). In these circumstances, an issuer could rely on certification from the adviser (e.g. certification that the client received current advice): see RG 274.207. However, we did not observe any issuers seeking such certification, although one issuer sought the adviser’s contact and AFS licensee details.”