Talk to us today about our Product Design and Distribution Readiness Assessment tool.
Financial Product Design and Distribution Obligations Assessment
ASIC’s new obligations for financial product design and distribution come into effect in October 2021. These changes will require financial product issuers and distributors to demonstrate how they are putting customer needs at the centre of how they design and distribute products, with significant penalties promised for issuers and distributors that fail to meet the new bar.
Both new and existing financial products must be designed to benefit and meet the needs of the target market. Considerable effort must be made to define the target market and create products that meet the market’s specific needs.
While there is some time before the changes come into effect, when you consider what is involved it is clear these new rules will prove a challenge even for those who start working on them now.
What does it all mean?
While ASIC are still finalising the rules, assuming the drafting is not changed:
- These obligations apply to virtually every new or existing financial services product that will be sold going forward
- They require defining who the ‘target market’ is and how the product is meant to operate to the target market customer’s benefit
- They require establishing a ‘product governance framework’ – a specification for end-to-end product lifecycle management – setting performance expectations, monitoring them, reporting on them, trigger thresholds, governance, action item management – all of which must be documented
- Products without this documentation will no longer be able to be sold
- There are obligations on both the issuer of the product and those involved in distribution (including brokers) to ‘manage’ the delivery of the product consistent with its design, in other words ensuring that those who take up the product realise the benefits intended for them
- Where performance does not equal the stated expectations, there is a reporting obligation to tell ASIC within 10 days
- Additionally, in such cases where expected outcomes ‘for customers’ are not realised either the distribution or the product needs to be changed, or the product must no longer be sold.
Assess your readiness for change
We can help you no matter where you are on your journey to meeting Product Design and Distribution obligations. We have developed three specific ways to help, depending on your current position:
Why it should be more than just compliance
These new obligations require that for each product a Target Market Determination (TMD) be written and made public. Developing these requires a critical analysis of how the product’s features benefit customers and how they make you money. We expect this will lead to some very fact-based decisions to rationalise products – those not delivering will be culled allowing for greater focus on those that deliver as intended.
Higher sales conversion rates
Whilst intuitively you already try to sell to those for whom the product is designed, establishing greater discipline and application of a more robust framework will deliver that result delivered more often. Selling more specifically to those customers something that meets their needs, and which benefits them is likely to be quicker and easier – taking customers out of the market quicker.
Meetings customers’ needs and delivering true benefit is certain to see a reduction in complaints, and an increase in the proportion of customers truly happy with their purchase. They will be less likely to seek a change and more likely to repeat the process with you again in the future.
If those opportunities alone are not enough reason, the survey will help you avoid the negative consequences that can result. Products without a TMD can no longer be sold. If customers are not receiving the benefits as promised, then the product must be changed so that they do, or the distribution practices changed so that those not benefitting are no longer sold the product or the product itself must no longer be sold.