FPA points to unworkability of DDO regime

Unnecessary and unworkable record-keeping and reporting obligations are being imposed on financial advisers by the Government’s new Design and Distribution Obligations (DDO) regime and must be addressed, according to the Financial Planning Association (FPA).

In a submission filed with the Federal Treasury, the FPA has expressed disappointment that the Government’s proposed amendments to the DDO legislation have not addressed issues raised by planners on the issue including the fact that they are already being held to higher standards.

“…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,” the FPA submission said.

“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 submission also argues that the reporting and record-keeping requirements of the DDO regime fail to recognise the higher obligations owed by financial advisers to their clients.

“…when providing personal advice, financial planners consider 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,” it said.

“The best interest obligations in the Corporations Act and the standards of the new Financial Planner Code of Ethics, oblige financial planners to undertake significant product research and comparisons to determine whether a product is appropriate for that client’s circumstances. The product must be suitable for the role it will play in the financial plan to achieve the client’s immediate and longer-term goals and meet likely future interests and needs. These obligations also require planners to clearly demonstrate that the client would be in a better financial position and that it would improve the client’s financial wellbeing if the advice were followed. This will be different for each client of the financial planner.”

“Financial planners do not have a ‘whole of market’ view of investors of a particular product. Planners would only be privy to consumers who invest in a product if they are clients of the planner. If the planner has recommended the product through the provision of quality personal advice in the best interest of their client, the planner has considered all risks of the product in relation to the individual client’s circumstances and determined that the product is appropriate. As a planner’s product recommendation is based on this client/product assessment and not the product TMD, the client may 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.”

“Financial planners have stringent disclosure, record keeping and reporting requirements under the financial advice provisions in the Corporations Act. 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.”