Having endured ‘Red October,’ which some are referring to as the implementation month of further regulatory change, how have you met your obligations and client protection governing principles?
Advice practices are now having to manage new design and distribution laws, formally identify their target market of consumers and ensure the products they recommend are suitable for that target market.
How prepared is your business to start implementing the changes?
Whether you’re an authorised representative under a corporate licensee or hold your own AFSL, you need to have a plan to address the new requirements.
At Connexus Solutions, we have approached this in a pre-emptive and proactive manner and have positioned our Connexus Club members with some best practice frameworks to implement. For those that don’t currently have inhouse guidance, here are some valuable steps to consider:
How to navigate the Design and Distribution Obligations (DDO)
If you are engaging in retail product distribution you must understand and comply with the DDO obligations for distributors of financial products. At a business level you should identify which products are subject to the DDOs and ensure you have received a Target Market Determination (TMD) for each product.
Advisers should understand the overall obligations on distributors and in particular:
- The obligation to take ‘reasonable steps’ to result in distribution that is consistent with the TMD when providing general advice or execution only services; and
- That ASIC expects personal advice providers to consider the ‘TMD’ as a part of the BID (even though personal advice is excluded conduct).
When you receive TMDs, you should review these carefully and engage with product issuers to ensure you understand the ‘target market’ and identify the specific reporting requirements and timelines for reporting.
Most firms are keeping a spreadsheet to record and monitor the different reporting deadlines for each product on their APL. As part of this tracking, you should also ensure complaints are being monitored to identify any ‘significant dealings’ outside the target market.
The greatest impact of DDO is on execution only and general advice. We have seen firms making the call to no longer provide execution only services on financial products outside of ordinary shares, as a result of these changes.
Advisers have also built DDO into their personal advice processes, and whenever a complaint is received, the firm will need to ensure they determine whether the complaint needs to be reported to the product issuer.
How do you know if you have implemented Fee Disclosure Statements (FDS) correctly?
A key priority is to ensure all clients are on your most up to date ongoing fee/services agreement – our advice is to clean up legacy arrangements.
Ensure you are very clear on the services you have promised to clients so these can be reported against. You have until 30 June 2022 to issue clients with the new enhanced FDS (noting any FDS issued during the transition period needs to cover the period up to the date before the FDS is given to the client).
The new breach reporting regime – are you prepared?
We have seen an increased focus on ensuring advice practices have compliant processes and systems, and they are automating as much as they can where possible.
The aim is that reportable situations will only arise from a departure of the approved process rather than having non-compliant templates or processes leading to multiple reportable situations. Firms are also building systems to collect and store required data about advisers so that they’re ready to share this data when requested under the new reference checking and information protocol.
Can you really future proof your advice practice following the October regulatory changes?
We think you can.
With the right team around you, best practice templates, processes and frameworks, you have the opportunity to meet the requirements and still keep your business running efficiently. We don’t recommend trying to navigate it alone.
Why join Connexus Solutions?
We know that navigating any compliance changes introduced by ASIC can be confusing and daunting. Especially, when you don’t have the guidance of a large licensee.
By being a Club member of Connexus Solutions, we provide you with the best possible information and guidance. Through our strategic partners, we guide you through the maze of regulatory change, so that you can feel confident you have the right framework in place.
If you’re looking for a partner to help you run your AFSL, and enjoy the benefit of a community of like-minded peers, then reach out to us to learn more about what we’re doing.
If you’re looking for a partner to help y run your AFSL, and enjoy the benefit of a community of like-minded peers, then reach out to us to learn more about what we’re doing.
