Design & Distribution Obligations (DDO)
This page has been prepared and issued by Philo Capital Advisers Pty Ltd ABN 70 119 185 974 AFSL 301808 (Philo). Please note our disclaimer. Philo is not a legal firm and what follows is our current understanding of the Design and Distribution Obligations (DDO) regime, which came into effect for issuers and distributors of financial services on 5 October 2021. As we are not legal advisers, this should not be relied upon, and advisers and licensees should obtain their own professional advice.
Should you wish to talk to Philo about DDO related matters, please contact Brett Sanders on 0438 071 094 or Toby Potter on 0414 443 236.
What are the Design & Distribution Obligations?
Under the DDO regime, Issuers must define the target market for their products in a way that helps consumers access the most relevant service for their needs, by creating a Target Market Determination (TMD) for each product. As an example, the needs addressed by Philo's MDA portfolio TMDs include the investor's investment objectives, what proportion of the client's investable assets the MDA portfolio might be suitable for, the client's investment timeframe, the investor's ability to bear risk and loss, and the investor's liquidity needs. A TMD may also specify Distribution Conditions that intermediaries are expected to comply with, for example that a product is only suitable for retail investors.
For intermediaries such as financial advisers who are deemed to be Distributors of a relevant financial product, they are obliged to have regard to the TMD for that product. Key points advisers should be aware of include: the DDO regime applies to both advisers and licensees, and advisers need to be clear on their individual accountability; DDO does not replace existing adviser or licensee obligations such as the Best Interest Duty, it applies in addition to them; advising and subsequent dealing are excluded conduct under the regulation, but ASIC expects advisers to have regard to the content of the TMDs for products they recommend; and advisers and licensees must record any Complaints relating to products used by their clients, and inform Issuers of any Significant Dealing in their services. Philo has taken the conservative view that Managed Discretionary Accounts (MDAs) are covered by the DDO regime. Advisers seeking more information should review Regulatory Guide 274 as a starting point.
How Managed Accounts Assist Advisers with Their DDO Compliance
Managed accounts bring greater simplicity to meeting DDO requirements compared with the traditional approach of managing a multi-manager client portfolio. An adviser using a Philo MDA only needs to be familiar with, and report on, the TMD for the MDA portfolio itself, while Philo (supported by the appointed portfolio manager) takes on responsibility for ensuring TMDs are taken into account during portfolio construction, and for handling reporting to each underlying fund Issuer. This can significantly reduce an adviser's DDO workload compared with managing many individual fund holdings directly.
Philo Target Market Determinations
The MDA portfolios offered through the Philo MDA service correspond to one of five Target Market Determinations, covering Philo's Multi Sector Portfolios and its Direct Equity Portfolio. If you are an adviser wanting to understand how these TMDs map to the MDA portfolios available to you, please see your practice manager or contact Philo for assistance. If you are an investor with a Philo MDA portfolio wanting to understand which TMD relates to your portfolio, please contact your adviser or email enquiries@philocapital.com.au.
Notifying Philo of Complaints or Significant Dealings
To notify Philo of a Complaint or Significant Dealing, please contact us at mdaoperations@philocapital.com.au with your name and contact details, your business name, and a description of the Complaint or Significant Dealing being notified. You will receive an acknowledgement in response.
How managed accounts assist advisers with their DDO compliance
Advisers are aware of the material benefits MDAs provide investors over traditional approaches to managing multi manager client portfolios. One of the benefits managed accounts now offer advisers is the greater simplicity they can bring to meeting DDO requirements.
Consider an investor with 20 managed funds in their portfolio, offered by say 18 different fund managers. An adviser that is employing the ‘traditional’ approach to managing client portfolios now has Complaints and Significant Dealing reporting obligations for each of the 18 fund managers and 20 products involved. Having to be aware of the contents of 20 TMDs, to be mindful of each when constructing portfolios (inclusive of Distribution Conditions) and then meeting the various reporting requirements of each Issuer is relatively onerous.
Contrast that with a different investor who also has a 20 fund portfolio, but accessed through a Philo MDA. In this instance the adviser is the Distributor of the MDA service and Philo is the Distributor of the underlying managed funds. The adviser only has to be familiar with, and report on, one ‘product’ being the MDA portfolio, whereas Philo (supported by the appointed portfolio manager) is the party that has to ensure TMDs are taken into account during portfolio construction and handles the reporting to each fund Issuer accordingly. The advisers DDO workload is reduced by close to 20 times.
Philo Target Market Determinations
The MDA portfolios offered through the Philo MDA service all correspond to one of the five Target Market Determinations on this page. To view the TMD simply click on the relevant box below. If you are an adviser wanting to understand how the TMDs below map to the MDA portfolios available to you, Philo has provided your business with a table setting out the relationships. Please see your practice manager or contact Philo for assistance. If you are an investor with a Philo MDA portfolio wanting to understand which TMD relates to your portfolio, please contact your adviser or email enquiries@philocapital.com.au.
Notifying Philo of Complaints or Significant Dealings
To notify Philo of Complaints or Significant Dealings, please complete the form below for each issue being notified and then hit the submit button. You will receive an acknowledgement email in response.