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How DDO will stifle advice APLs

By Mike Taylor9 September 2021

First it was the professional indemnity insurers who influenced the conservative shaping of Approved Product Lists (APLs) and now there is a growing industry consensus that the Government’s new Design and Distribution Obligations (DDO) regime will make APLs even more vanilla.

And the bottom line for funds management start-ups and boutiques is that their ability to earn inclusion onto the APLs of many financial planning licensees is about to become that much harder.

“The days of being easily able to accommodate small micro-cap or private equity funds on your APL are over,” the chief executive of a major licensee told Financial Newswire this week. “That’s because there is going to be a reluctance to step outside the benchmarks.”

Licensees have acknowledged that obtaining and retaining PI cover has played its own role in shaping APLs which has persuaded planning groups to specifically exclude some types of investments, including Managed Investments Schemes (MIS) and allowing access to direct shares outside the ASX 200.

This is hardly surprising in circumstances where PI underwriters have insisted on being provided with a licensee’s APL at the time of policy renewal.

“There is simply no reward for pursuing an aggressive APL and under DDO we’ll be looking towards a very disciplined approach,” the chief executive said.

The comments came as the major licensees began the process of fully informing their advisers of the new rules generated by DDO, including AMP Limited which on Tuesday issued documentation explaining Target Mark Determinations (TMDs) and the consequent obligations of advisers.

“As a product issuer, AMP must make a TMD for each open product and make this publicly available,” the AMP communication said.

“Advisers should (under general advice or execution only and for products where a TMD is required);

  • take reasonable steps to distribute an AMP product in line with the TMD
  • not distribute an AMP product where there’s no appropriate TMD in place or where we’ve advised you to stop distributing.

But while moving to ensure their businesses are fully prepared and compliant with the new regime, licensees told Financial Newswire that notwithstanding the specific carve-outs with respect to the provision of financial advice they remained uncomfortable with the levels of paperwork the new regime was imposing on them, particularly around six-monthly reporting.

For their part, fund managers have expressed concern at the impacts of the DDO regime, with one fund manager describing the regime as being the “answer to a question that was never asked”.

Premium China Funds Management’s Jonathan Wu said that the process of generating a TMD was both time-consuming and costly, and agreed that the process was likely to be even more so for start-up fund managers.

“I think the new regime definitely risks stifling innovation,” he said.

Mike Taylor

Mike Taylor

Managing Editor/Publisher, Financial Newswire

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The Observer
9 months ago

And the real winners are ASIC and those helping to prop up the bureaucracy.

ex-Liberal
9 months ago

This is yet another example of how the Liberal government are inept.

RMB
9 months ago

Interesting mike. Straight after learning about DDO our response was to immediately take a blowtorch to the APL and leave the retail investor with almost nothing but indices, mostly through vanguard. I literally drew up a list of 30 funds to get the chop before year end. Most are OK products, but I don’t feel like the reporting, I have enough regulatory BS to worry about that are more important than a menial and utterly useless activity like reporting to a fund manager. There will be almost no room left on our APL for boutiques, they will need to make it extremely compelling to even get through the door I.e big fee discounts for the client, won’t get a look in otherwise. Our strategy is to mostly index and exclusively use one to many relationships only ie pinnacle and vanguard. If people want products outside of that, sorry If you’re not wholesale I’m not your guy. A separate wholesale license Is being set up where we can actually advise those lucky enough to be able to afford it, which is a lions share of the client base in any case. This is the straw that broke the camels back, business is now closed to new retail, enough is enough.