The establishment of SMSFs, the addition of new members and the commencement of pension in a fund should be exempt from the design and distribution obligations (DDO) and target market determinations (TMD) required of financial product providers, according to the SMSF Association (SMSFA).
In its submission to the government’s Quality of Advice Review, the SMSFA stated the exemption would be consistent with the original intent of the policy, reduce red tape and compliance costs for SMSFs and provide clarity for financial advisers, document providers and SMSF trustees.
The industry body noted that during government consultation on the bill that would give effect to the DDO and TMD, both the Australian Securities and Investments Commission and Treasury did not believe they would apply to SMSFs, as did the government committee conducting the consultation.
“Given the original drafting of the bill, and the fact the Senate Economics Legislation Committee made no mention of the need for SMSFs to be included, it is our belief that the DDO/TMD regime was not intended to apply to the establishment of an SMSF and financial dealings with regards to an SMSF,” the submission stated.
The SMSFA pointed out the DDO applied to issuers and distributors of financial products that were available by issue or regulated sale and the TMD was designed to ensure products were distributed correctly and for advisers to consider when providing advice and meeting their best interest duty.
“An SMSF is a private fund and does not offer membership to the public at large. Therefore, the requirement to have a publicly available TMD as required under the legislation does not align to the principles or function of an SMSF,” the submission noted.
“SMSFs meet the definition of a financial product. However, when we look at how it resides within the DDO/TMD framework, it is a structure in which to house financial products. Those financial products will need to comply with the DDO/TMD regime obligations.
“There are no consumer or public benefits to be gained by extending the DDO/TMD provisions specifically to the SMSF structure itself.
“Rather, including SMSFs will add unnecessary complexity and cost burdens for no benefit. The logic that applies to commercial product issuers does not apply in an SMSF context as the SMSF structure is not being offered to the public at large.”
The SMSFA added that trustees were directly responsible for the operation of a fund and carried core trustee duties and obligations, but were not licensed in any way, nor did they engage in retail product distribution, although they may engage these services and acquire financial products from an appropriately licensed provider.
“The trustee’s duties and obligations ensure that the needs of individual members are appropriately considered, documented and actioned. These all align with the policy objective of the DDO/TMD obligations,” it said.
“If SMSFs are to be included in the DDO obligations, this could include unreasonable design parameters and restricted distribution obligations for trustees dealing with themselves or entities which deal with SMSFs.”
