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Proposed changes to the regulatory framework around advice have been released, with broker associations welcoming changes that could streamline DDO obligations.
Earlier this week, a proposals paper was released for consultation detailing changes that could be made to streamline and simplify regulatory compliance around financial advice to reduce costs and duplication.
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In the Quality of Advice Review (QAR) proposal paper released for consultation on Monday (29 August), Allens partner and superannuation law specialist Michelle Levy – who has been leading the Quality Advice Review – put forward 12 proposals to change and streamline the regulatory framework for financial advice.
Among one of the proposals is the recommendation that the design and distribution obligations (DDO) – which also cover mortgages – be amended.
Ms Levy outlined: “I am considering whether it would be appropriate to amend the DDO reporting requirements so that relevant providers do not have to report significant dealings outside the target market.
“I also think the law should be amended to prevent product issuers [from] imposing additional reporting obligations through their target market determinations on relevant providers.
“In my view, it is appropriate for relevant providers to report the number and nature of complaints to the relevant product issuers, but I do not think it is necessary for them to report ‘no complaints’.”
Instead, she suggests that the reporting requirements under the DDO regime should be simplified by requiring relevant providers to only report to the product issuer where they have received a complaint in relation to a product.
This proposal aims to reduce regulatory burden and the cost of running an advice business, which could increase the accessibility and affordability of financial advice, she said.
Indeed, the financial services regulator has already provided relief from this obligation in ASIC Corporations (Design and Distribution Obligations Interim Measures) Instrument 2021/784.
How it could impact brokers
Ms Levy later urged for the provision of “personal advice” to be made “somewhat broader” to ensure clarity and suggested that “general advice” should be removed altogether.
She continued: “If the definition of personal advice I am considering is adopted, it would also be appropriate for the DDO rules to be amended so that only those providers who are relevant providers are exempt from the obligation to take reasonable steps to ensure financial products are issued to consumers in the relevant target markets. This is because only relevant providers will continue to have a best interests duty under the Code of Ethics.”
Ms Levy said she acknowledged that mortgage brokers (who also now have a best interests duty) may say the same relief should be extended to them.
“That is not a question for me. All other providers of personal advice would continue to be subject to the full range of obligations applying to a distributor of financial products,” she said.
The Adviser asked both the Finance Brokers Association of Australia (FBAA) and the Mortgage & Finance Association of Australia (MFAA) for their thoughts on whether brokers should be extended the same relief, as Ms Levy hinted at.
Naveen Ahluwalia, the head of policy and legal at the MFAA, explained that – as mortgage brokers are required to act in the best interests of their customers, they currently already “enjoy streamlined obligations under DDO as confirmed by Treasury last year”.
She said: “This means that the reporting obligations for mortgage brokers under DDO legislation is limited to the reporting of significant dealings outside a target market determination and the reporting of product complaints.
“Having extensively consulted with ASIC on the matter of nil complaints reporting, we agree and support the approach taken by ASIC in Instrument 2021/784.
“We also think it sensible as part of the Government’s move to continue to improve the navigability of the Australian financial services law, to move this ASIC instrument into primary legislation.
“While the reporting of significant dealings outside target market determinations in most cases is not a particularly onerous obligation for mortgage brokers, we agree that it may be of limited value, and in the light of the mortgage broker Best Interests duty could provide an opportunity to streamline DDO obligations further.”
Peter White AM, managing director of the FBAA, told The Adviser: “The Best Interests Duty for mortgage brokers is generally a broker-facing conduct in regards to how they act in relation to their client/future borrower/s, and mortgage brokers do not give advice, they provide credit assistance.
“So this is not the same as the obligations that those giving advice are under (i.e. Financial Planners etc).
“We supported the removing of the ‘no complaints’ reporting to our industry, but the reporting should not be just reactive to a complaint being received but also proactively if an issue is identified by a relevant provider.”
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