Unpacking the personal advice DDO carve-out

SAFAA Ashurst

17 March 2022
| By Liam Cormican |
image
image
expand image

Financial advisers that provide personal advice may not need to comply with the obligation to take reasonable steps to comply with the Target Market Determination (TMD) in theory, according to a regulatory lawyer.

Speaking on a Stockbrokers and Financial Adviser Association (SAFAA) webinar, regulatory lawyer Corey McHattan, partner at Ashurst, said personal advice providers complying with best interest duties were effectively complying with Design and Distribution Obligations (DDO) in practice.

Personal advisers that wished to provide suitable products outside of a TMD to a client would still need to be careful about getting documentation right in case obligations needed to be proven in court later.

McHattan said a carve-out had been introduced by the Australian Securities and Investments Commission (ASIC) addressing the concern that the obligation to question whether a client was within the target market for a product would constitute personal advice.

The carve-out allowed advisers to ask for information solely to determine whether a person was in the target market then inform the person whether they were or were not in the TMD.

“But then the problem is how do you prove that you’re using that information solely for that purpose?” McHattan asked.

“I’ve had a lot of discussions with the Australian Securities and Investments Commission (ASIC)… and it’s still not entirely clear to me.”

McHattan said the safest approach was to ring fence the information and only use it for TMD interpretations and not for any other purpose like marketing.

“That may seem like overkill, but to me, that's really the only way you can be confident you can rely on the carve-out,” he said.

“Otherwise, you do run the risk that the client will come along and say well, ‘but I answered all these questions, I thought the issuer or distributor was going to take into account my particular situations and needs’.”

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

Interesting. Would be good to know the details of the StrategyOne deal....

3 days 21 hours ago

It’s astonishing to see the FAAA now pushing for more advisers by courting "career changers" and international recruits,...

3 weeks 1 day ago

increased professionalism within the industry - shouldn't that say, FAR register almost halving in the last 24 months he...

4 weeks 1 day ago

Insignia Financial has made four appointments, including three who have joined from TAL, to lead strategy and innovation in its retirement solutions for the MLC brand....

2 weeks 3 days ago

A former Brisbane financial adviser has been charged with 26 counts of dishonest conduct regarding a failure to disclose he would receive substantial commission payments ...

2 days 19 hours ago

Pinnacle Investment Management has announced it will acquire strategic interests in two international fund managers for $142 million....

1 day 22 hours ago