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Will DDO add $30,000 per year to adviser costs?

Mike Taylor29 September 2021
Graphic of costs text riding a red arrow upwards

The cost of the Government’s new design and distribution obligations (DDO) regime has the potential to impose an $30,000 a year in both time and costs on financial advisers unless they are using managed accounts.

And the estimated costs to financial planning licensees could be as much as an additional $200,000 a year, particularly if they are running open architecture approved product lists (APLs) and choose not to reduce the number of products on those lists.

That is the bottom line assessment of financial advisers and financial advice licensee executives as they work their way through the implementation of the new regime and the paperwork already flowing from major product providers.

Indicative of the factors being taken into account by advice firms are guidance such as that provided by BT Managed Portfolios which, when dealing with distribution, is telling licensees and their advisers that complaints in relation to products will need to be reported on a quarterly basis, but that they will have to report within 10 days if they “become aware of a significant dealing in relation to a TMD that is inconsistent with the TMD”

Licensee documentation provided to advisers and obtained by Financial Newswire reveals that they are being told that when providing personal advice regarding a product that has a TMD, they will need to read and consider the content of the TMD in relation to their client’s circumstances and record the following:

  • That the TMD has been examined
  • That it is either within the TMD or it is not
  • And the reasons it is not within the TMD.

According to AdviceIQ general manager, Paul Harding-Davis the process is likely to add around $300 a year to the cost of servicing a client but may be substantially less if they are utilising a managed account.

“We are not just dealing with the DDO regime from the point of view of the obligations being imposed on licensees and advisers as ‘distributors” we are also dealing with it from the point of view of the demands being made by the product issuers,” he said.

Taking Harding-Davis’ $300 per client estimate, an adviser servicing 100 clients would be facing an additional annual cost in the order of $30,000.

The cost to licensees could run as high as $500 per product sitting on their APLs and this could be substantial if they are running extensive open architecture APLs.

Countplus chief executive, Matthew Rowe said that he believed that for an average-to-mid-sized licensee the additional cost of the regime could run to between $150,000 and $200,000 a year.

However, he said that the cost would ultimately depend on the scale of the licensee, the nature of their APL and the degree to which they outsourced their compliance.

Both Rowe and Harding-Davis welcomed the fact that the Government had amended its DDO approach to remove the need for “nil” reporting but said that even with this eliminated from the equation the costs would be substantial for those adhering to the letter of the regime.


Mike Taylor

Mike Taylor

Managing Editor/Publisher, Financial Newswire

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