SMSF advisers and service providers need more clarity on whether the Design and Distribution Obligations (DDO) regime will apply to them, with no guidance at present coming from regulators, according to a legal firm.
Holley Nethercote general manager Kath Bowler said the DDO regime was easy to overlook despite the ‘design’ aspect being applicable to financial advisers, while Smarter SMSF chief executive Aaron Dunn added the obligations also extend to service providers that offer documentation and administration services.
In a recent presentation, Bowler noted that while the DDO rules required product issuers to prepare a disclosure document, such as a product disclosure statement (PDS), under the Corporations Act, the latter made an exemption for where the product was an interest in an SMSF.
“The designers of the product have an obligation to create a target market determination statement,” she said.
“Along with that comes a whole set of governance issues they need to monitor around who has purchased the product, whether they are fitting within the target market determination and the need to report any breaches or variations.”
Dunn added that a PDS was unnecessary where an adviser or service provider could give sufficient proof an SMSF trustee is sufficiently knowledgeable regarding the financial product, but warned this aspect can be very difficult to prove.
“We are seeing a PDS issued on a new fund, deed upgrade, a pension commencement or adding a member because how can you say a trustee or individual that is coming into the fund is well versed and skilled in the laws and operation of the regulations to not warrant issuing the PDS?” he said.
“That is why you see a large majority of providers actually issuing these because it’s a safety net. It would be hard to argue that [an individual] coming in is fully versed in all the ways in which the superannuation laws work.”
Bowler noted the Australian Securities and Investments Commission (ASIC) had not made specific comments regarding SMSFs and as such further information is now being sought.
“There was a speech quite early on in the [legislative process] where ASIC indicated that they did want SMSFs caught, but they haven’t commented on it at all in their regulatory guide, so there is no clarity around it as to whether SMSFs are caught or not,” she said.
“If you look at the specific words [in the DDO regulations], the obligations apply to someone who must prepare a disclosure document, but the Corporations Act said SMSFs do not have to do a PDS, hence the murky picture.
“We met with the SMSF Association, which is seeking clarity from Treasury on this issue so we can understand the lay of the land and what their intentions are.
“The conversations we have had with our lawyers is that it could be in or it could be out. So we are watching this space to see where it ends up.”
