The dangerous oversight in the DDO legislation

Alex Burke,  Senior Writer,  No More Practice Education

According to the results from our recent survey, the majority (40%) of our community is unsure as to what impact DDO will have on the advice sector, while just over a quarter (26%) believe there will be major ramifications. 

This mix of uncertainty and dread is understandable, given both past experience with significant advice reforms and because DDO affects nearly every aspect of Australian financial services – as Iress chief commercial officer Michael Blomfield laid out in his article on the topic. Moreover, even though the DDO regime commences in less than a month now, the specific rules are still very much in flux.

We've already discussed the previous round of amendments to the DDO legislation, which included product exemptions (with caveats) and the clarification that licensee employees are not subject to their own separate set of obligations. Now the Government has made further changes, the most pertinent of which is an adjustment to the complaints reporting regime. 

In order to ensure complaints reporting under DDO is "fit-for-purpose," the Government has removed the requirement for distributors (which includes advisers) to report nil complaints and nil information data to product issuers. This will no doubt come as some relief to those advice businesses coming to grips with the amount of reporting DDO will entail across the industry. 

While the recent of amendments we've seen to the DDO legislation appear to be geared towards simplifying the regime – or at least providing some much-needed clarification regarding what individuals subject to the laws actually need to do – there's still a lingering question concerning the level of regulatory duplication and compliance overlap DDO will create in financial advice.

As the FPA outlined in a recent submission, the application of DDO to advisers "ignores the higher standards of the financial advice regime." As an example, the association noted that an adviser's obligation to ensure their advice "must be" appropriate for a client is stricter than the DDO requirement that products are "likely to be appropriate for consumers." 

Other fundamental incompatibilities arise from the fact that, as the FPA put it, the DDO regime approaches regulation from the "product perspective." 

"In contrast," the submission said, "when providing personal advice, financial planners consider the appropriateness of each product recommendation in relation to the individual client’s circumstances and as one part of that client’s broader financial plan. The best interest obligations in the Corporations Act and the standards of the new Financial Planner Code of Ethics, oblige financial planners to undertake significant product research and comparisons to determine whether a product is appropriate for that client’s circumstances. 

"The product must be suitable for the role it will play in the financial plan to achieve the client’s immediate and longer-term goals and meet likely future interests and needs. These obligations also require planners to clearly demonstrate that the client would be in a better financial position and that it would improve the client’s financial wellbeing if the advice were followed. This will be different for each client of the financial planner." 

What is the outcome of these overlapping obligations? According to the FPA, there's potential for data about a product to be "tainted" because "a planner's product recommendation is based on this client/product assessment and not the product TMD." 

It's easy to speculate on more wide-ranging implications, too. Beyond the cost factor mentioned by multiple respondents in our previous DDO surveys, it's likely many licensees are in the process of whittling down APLs in light of TMD information (if they haven't done so already). 

Even though recent changes have streamlined parts of the DDO regime, it's understandable why many advisers see it as yet another chapter in a reform agenda that has major implications for advice – without actually taking advisers into account. 


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