Design and Distribution Obligation in AdviserLogic

Design and Distribution Obligation in AdviserLogic

The Design and Distribution Obligation (DDO) regime commence in Australia on 5 October 2021. According to RG 274, DDO was established “to help consumers obtain appropriate financial products by requiring issuers and distributors to have a consumer-centric approach to the design and distribution of products”.

Importantly, ASIC has released specific guidance in relation to personal advice: advice licensees and financial advisers are exempt from ensuring that a product is distributed consistently with the Target Market Determinations (TMDs).

Broadly speaking, AdviserLogic will support advisers and licensees adhere to DDO by:

  1. Providing users with access to Target Market Determinations (TMDs)
  2. Supporting a simple means of logging incidents of clients taking up products that are not suitable for them or raising product complaints.

Morningstar’s Target Market Determination collection:

Morningstar has worked actively with product issuers and industry groups since the industry was given notice of DDO. Specifically, we have worked to develop a format for product issuers to submit their TMD in a consistent manner.

Different licensees will adopt different approaches to the collection and analysis of TMDs, so AdviserLogic aims to support the strictest interpretation of the DDO requirements. While obligations for personal advice have been clarified recently, the need to comply in instances where the practice is supporting execution-only or general advice may continue to arise.

AdviserLogic releases for Design and Distribution Obligation:

1st  October

  • Download TMD documents for investment options recommended through Scenario cards in the Digital Advice module.

13th  October

  • Users can now generate TMD & PDS documents through Reports > Templates, outside of the Digital Advice module, when generating any reports the users can tick the checkbox to download TMD & PDS documents for existing and recommended investment options.

Late October

  • New file note categories will be added to capture product-related client complaints and recommendations significantly departing from the target market.
  • Build data segments to report on DDO file note categories.

Mid-November

  • Download TMD documents from Client’s Assets and Superannuation pages.
  • Identify whether TMD documents are available for holdings within a portfolio without needing to download the TMDs.

Please note, Platform and Insurance TMDs will not form part of Morningstar’s coverage initially. We are working on a solution to make these documents available.

How AdviserLogic will support the Design and Distribution Obligation:

For Digital Advice: Users can download and review TMDs when generating Digital Advice.

  1. When a Digital Advice Scenario is completed, the TMD documents will be available under the ‘Download’ drop-down button for the relevant advice scenario. There is also the option to ‘Download All’ the files associated with the advice scenario into a Zip file.1_screen.png
  2. When the file(s) are downloaded, there will be a ‘File has been downloaded successfully’ notification and the TMD documents will be saved in a TMD folder under the advice scenario name folder.2_screen.png
  3. If TMD documents are not available in the Morningstar database, there will be a ‘No File available for download’ notification.3_screen_2.png

For Docx Report: when generating any reports through Reports >> Templates, the users can tick the checkbox to download TMD & PDS documents for existing and recommended investment options.

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For File Notes (upcoming feature): In circumstances where a client is taking up a product that would, in isolation, be considered unsuitable for them, users should:

  • Create a file note
  • In the Client Name field – specify the applicable client
  • In the file note category – select “DDO - TMD Suitability”
  • In the Title field – specify the product name
  • In the Comments – specify the amount invested and add any notes explaining the circumstances of the client taking up the product (e.g. an explanation as to why it is appropriate for the client, confirmation that it is execution-only, etc.)

In circumstances where a client raises a complaint about a product, users should:

  • Create a file note
  • In the Client Name field – specify the applicable client
  • In the file note category – select “DDO – Client complaint”
  • In the Title field – specify the product name
  • In the Comments – specify the amount invested and add any notes explaining the circumstances of the complaint.

For reporting purposes, at the appropriate reporting time, users should:

  • Go to segments
  • Run a report for “DDO File Notes – Complaints” or for “DDO File Notes – TMD ”
  • Send any product-specific reporting to the relevant product issuers based on the report outcomes.

 

Future development opportunities:

As the industry applies DDO in future months, opportunities will arise to identify pain points and streamline operations for advisers and licensees. At present we believe the following areas may lead to future development opportunities in consultation with you:

  • As TMD inputs become more consistent and the data can be analyzed more effectively it may be possible for suitability to be assessed automatically for clients.
  • Reporting is a key element of DDO and the automation of reporting back to licensees and product issuers can potentially improve efficiency for practices and support the intention of the regulations. As we develop an understanding of the reporting obligations on distributors and how they would like to undertake this, we will also investigate ways to streamline this process.

Key Point to remember:

  • TMD documents may not be available for all financial products you recommend in AdviserLogic. Please contact the product provider directly to confirm the TMD.
  • We will update the list of all the funds that Morningstar covers every week and you can access the same in the below excel link: (data as of 30-September-2021: List of funds with TMD data.)
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