Financial Planning

SMSFs still in the dark over DDO


Two differing positions within the law continue to create uncertainty as to whether SMSF advisers must comply with the DDO regime.

The SMSF sector still remains uncertain as to which way they should move when it comes to meeting requirement under the Design and Distribution Obligations (DDO) regime with the law creating a grey area for practitioners.

BT Academy head of financial literacy and advocacy Bryan Ashenden said while the DDO regime commenced on 5 October 2021 the SMSF sector was still left with questions as to whether the regime will apply as current law creates an obligation to act as well as providing an exemption.

“Generally, DDO obligations apply for product providers who have to issue a product disclosure statement (PDS) but does an SMSF need to provide these?” Ashenden asked during a webinar in December.

“Under the Corporations Act there is a general provision to provide a PDS to prospective members of a fund and to those who will join and invest in a fund.

“However, there is also an exemption that says, in the case of an SMSF, if a prospective member has access to all the information you would expect to have seen included within a PDS, their adviser does not need to provide one.

“Does that mean the DDO obligations do apply because of the broad obligation to provide a PDS or do we not have to worry about DDO where we are relying on the exemption to not provide a PDS?”

According to Ashenden the uncertainty extended beyond the creation of the fund and could create confusion where third-parties may be involved.

“There is also the question of [whether] the obligations change over time and do we rely on the exemption when we set up the fund but [then exercise less] reliance on it when admitting new members to an existing fund?” he asked.

“If, when you set up an SMSF for a client and the provider of the trust deed for the fund incorporates the PDS as part of that deed, does that now mean you are caught by the DDO obligations because you ‘provided’ a PDS at that time?”

He noted the obligations appeared to be at odds with the advice provided to some SMSF trustees and created uncertainty about whether advisers should be providing a PDS where required.

“It can seem nonsensical because we are talking about telling clients everything about establishing or joining a fund, and if it is right for them or not, and also providing them with a document that asks if it is right for them to join that fund.

“So, from a strict compliance perspective, do those obligations apply or not? We’d like to see some form of clarification come out in that respect into the future and we don’t know whether we will or at what time that will arise.”

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