Professionals or Distributors?

The financial advice industry and in particular its participants have gone through and continue to go through what many practitioners can likely describe as...hell (to put it mildly) and it's about to get worse.

Advisers must now meet additional compliance requirements to report directly to product providers and platforms in the manner, content and form as prescribed by the law but also to a large degree the product provider AKA the 'issuer'.

Did you know that?

As of the 5 October 2021 the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019 which is an Act that will amend the law relating to corporations and consumer credit protection. 'Issuers' and 'distributors' of financial products are directly impacted.

Distributors include Australian financial services (AFS) and licensees and authorised representatives i.e. all Financial planners.

Your high level obligations - In a nutshell

• Not to distribute unless a Target market Determination (TMD) has been made - you must not engage in retail product distribution conduct in relation to a financial product unless it is engaging in excluded conduct or reasonably believes (after making all reasonable inquiries) that a TMD has been made, or a TMD is not required.

• Take reasonable steps in relation to distribution - you must take reasonable steps that will, or are reasonably likely to, result in distribution being consistent with the most recent TMD

• Notify the issuer of ‘significant dealings' : If you become aware of a significant dealing in the product that is not consistent with the TMD, you must notify the issuer as soon as practicable (within 10 business days)

  • This obligation extends to personal advice providers, or those that engage in conduct associated with such advice.

  • This is due to the fact that an issuer needs to notify ASIC of such dealings. The obligation to notify the issuer of a significant dealing is intended to help the issuer make timely and appropriate decisions (for example, a decision to review a TMD) and to meet its obligation to report significant dealings to ASIC

• Keep records - keep complete and accurate records of distribution information, including:

  • the number of complaints received about a product; and

  • information specified by the issuer in the TMD.

What's not covered?

Excluded financial products include:

• MySuper products;

• margin lending facilities;

• most ordinary shares;

• securities issued under an employee share scheme; and

• other products prescribed by the Corporations Regulations

What's a significant dealing?

It's not helpful that the term ‘significant dealing’ is not defined in the Corporations Act. According to ASIC (RG274), Whether or not a dealing is significant is a matter to be determined in the circumstances of each case. Issuers, who have an aggregate view of the distribution of their product, will take a more systemic approach to determining whether a dealing is significant.

In practice, it is likely that the issuer may require each and every time a product is distributed outside the TMD to be reported to the issuer which will place the issuer in a better position to make such a determination.

Essentially, excluding the above excluded products,

1. every product must be reviewed to identify the TMD, its currency,

2. ensure that it is distributed to the target audience.

3. If the product is distributed to a client outside the TMD to notify the product provider

4. Keep records of all of this.

How we are supporting advisers

The onslaught of regulatory change is overwhelming and strangling the advice creation and delivery process.

Luckily we have been working hard to continuously update our review process and technology to capture and manage these and other new requirements that continue to grow and change; providing advisers and their business a high level of assurance that they are meeting their obligations.

How we go even further to support advisers

We provide support to paraplanning through the creation of a "Parapliance" service. which is essentially reviewing the information received by paraplanning to identify and remedy potential compliance/quality gaps to reduce the risk to the advice and ultimately to the adviser and their business.

In short, we try to make life easier by doing the hard yards.

The enigma called ASIC

The overhaul of an industry and move to a profession with increased education, ethical and plethora of other standards and obligations, it's puzzling, almost contradictory, some may argue possibly insulting, as to why the regulator categorised authorised representatives as 'distributors'. It's likely that if you ask an adviser what they are, they would probably tell you that they are.. fed up and pissed off.

What about Best Interest Duty and going outside the TMD? Contact us info@advicecompliancesupport.com.au

Nikolas Kloufetos, Managing director, Advice Compliance Support