Q & A

DDO aims to help retail investors obtain financial products that meet their likely objectives, financial situation and needs by requiring Product Issuers (such as Morrison Securities) to consider the kind of investors that their products are likely to be appropriate for across the life cycle of the product, and to design and distribute those products in a way that reduces the risk of products being sold outside of the intended target market.

The DDO will commence from 5 October 2021.

Currently, retail investors of financial service providers rely on disclosure, financial literacy and financial advice (if they are advised by financial advisers) to help determine if a product is suitable. However, disclosure is insufficient to obtain the desired outcomes for retail investors.

DDO brings a more consumer-centric approach, as it requires Product Issuers when designing and distributing products to keep in mind specific target markets. The Issuer does this under a product governance arrangement (PGA) and Issuers and Distributors have specified obligations under RG 274 for retail investors.

The reform introduces a Target Market Determination (TMD) for financial products distributed to retail investors.

The DDO will apply to financial products for retail investors.

It does not apply to wholesale investors.

The new regulation requires that:

• Product Issuers design financial products that are consistent with the likely objectives, financial situation and needs of the consumers for whom they are intended (the target market), and take reasonable steps to ensure investors outside the target market are unlikely to acquire a product.
• Distributors must take reasonable steps to distribute financial products to the target market. Distributors (including personal advice Distributors) are also obligated to report complaints, significant dealings and information specified by the Product Issuers.

A Distributor may include AFSL holders and authorised representatives. Any person engaging in ‘retail product distribution conduct’ (RPDC) which includes dealing in a financial product; giving a disclosure document; providing a PDS and/or providing financial product advice.

A Target Market Determination (TMD) must meet the following content requirements:

• Be in writing.
• Describe the class of consumers that comprises the target market for the product (target market).
• Specify any conditions and restrictions on distribution (distribution conditions).
• Specify events and circumstances that would reasonably suggest the TMD is no longer appropriate (review triggers)
• Specify when the first review of the TMD must occur.
• Specify reasonable maximum review periods (review periods)
• Specify when the Distributor should provide the Issuer with information about the number of complaints (including nil complaints) about the product (reporting period).
• Specify the kinds of information that the Distributor must report to the Issuer, and how frequently.

Morrison Securities is an Issuer of Exchange Traded Options (ETO) and is required to make the TMD publicly available. Click here to find out more about ETO TMD.

Morrison Securities, in our capacity as a Product Issuer involving an ETO PDS, are responsible for the drafting and maintaining the TMD relating to the ETOs.

TMDs are subject to review by the review period detailed within the TMD, Morrison Securities Pty Limited has stipulated an annual review cycle, or earlier if a review trigger is met.

A PDS is a document that contains information about the product, including any significant benefits or risks, as well as the fees and costs.

A TMD is a governance document and details the class of consumer the product is intended for. It is not classified as a client disclosure document.

‘Reasonable steps’ is not prescriptively defined and will depend on a number of factors including the financial product and TMD. A Distributors must take into account all relevant factors in assessing what reasonable steps need to be taken in the circumstances, including:

• Risk: The likelihood of the distribution being inconsistent with the TMD;
• Harm: The nature and degree of harm that might result from the financial product being issued otherwise than in accordance with the TMD; and
• Mitigation steps: Steps that can be taken to eliminate and minimise the likelihood of the distribution being inconsistent with the TMD and the harm that might result.

There is no definition of a ‘significant dealing’ in the legislation. Issuers and Distributors need to determine on a case-by-case basis. As a Distributor when determining if a dealing is significant, you should consider such things as:

1. Is there a substantial amount of distribution occurring outside target market.
2. Is the distribution outside target market likely to cause significant consumer harm.

We are still finalising requirements in the TMD in terms of where and how Distributors will report this information however, Distributors themselves need to decide what ‘significant dealings’ are. We will provide further information once requirements are confirmed.

After a report has been lodged, Morrison Securities will then complete an independent review. If we come to the conclusion that a significant dealing has occurred, we would need to provide a report to ASIC.

We, in our capacity as a product Issuer, shall:

• Prepare a Target Market Determination (TMD) and make the TMD publicly available
• Create, publish and regularly review the ETO TMD and its ongoing appropriateness for the PDS that we issue.
• Take reasonable steps to ensure that distribution is consistent with the TMD (reasonable steps obligations).
• Identify and monitor for certain events, known as review triggers, to ensure the TMD remains appropriate.
• Review the TMD periodically and within 10 business days if we know that a review trigger has occurred.
• Notify ASIC within 10 business days of any “significant dealings” outside of the TMD
• Keep records of the TMD, along with any associated reviews and decisions.

Product Distributors should comply with the following obligations when providing general advice:

• Not to distribute a product to a retail client unless a TMD is available.
• Stop distributing products if the TMD is no longer appropriate to the retail client
• Take reasonable steps to ensure that the distribution of the product aligns with the TMD.
• Marketing and promotional materials to be consistent with the TMD. Also comply with hawking prohibitions (anti-hawking for retail clients).
• Collect, store and provide distribution information to Morrison Securities. These records kept by the Distributor are to be complete and accurate and stored for a minimum of seven years.
• Notify Morrison Securities of ‘significant dealings’ inconsistent with the TMD and do this within 10 business of dealings.
• Client complaints relating to the DDO regime to be reported to Morrison Securities when they arise or within 10 business days of the annual reporting period for nil complaints.

Product Distributors should comply with the following obligations when providing personal advice:

• Provision of personal advice falls under the definition of ‘excluded conduct’
• The reasonable steps obligation does not apply to a Distributor who provides personal advice to a retail client, so long as the financial adviser is complying with best interests duty.
• Stop distributing products if the client is outside the target market unless the financial adviser can demonstrate that under the best interests duty, it is still appropriate.
• Collect, store and provide distribution information to Morrison Securities.
• These records are to be complete and accurate and stored for a minimum of seven years.
• Significant dealings outside the TMD should be notified to Morrison Securities within 10 business days
• Client complaints relating to the DDO regime to be reported to Morrison Securities when they arise or within 10 business days of the annual reporting period for nil complaints.