Colonial First State’s (CFS) Target Market Determinations (TMDs) for the investment options available through FirstChoice Wholesale Investments and other investment products define the class of customers that each product is likely to be appropriate for. Given some discussions we’ve had recently with advisers, we would like to make our position in relation to diversification across our products clear.
• We understand that some product issuers’ TMDs have included a ‘diversification statement’. We don’t believe this is necessary to facilitate a diversified portfolio constructed from a number of different risk profiles to arrive at a desired customer risk/return profile, however we are planning to include this statement in our TMDs from early 2022.
• Our criteria for a significant dealing excludes instances where a customer has obtained a product that is not aligned to their risk profile specifically for the purposes of using the product, in combination with others, to arrive at a diversified portfolio that meets their risk profile.
We understand that a diversified portfolio can be constructed by investing in a number of different products to achieve the customer’s desired risk and return outcomes.
Our investment product TMDs describe the risk and return characteristics specific to each individual investment option available through our FirstChoice platforms. If a customer gains the recommended exposure to the risk and return characteristics of an investment option for only a proportion of their portfolio, this does not preclude them from being within the target market of the product. Our disclosure documents for these products make clear the importance and benefits of diversification. We also understand that advisers are educating clients on the importance of diversification through the advice process.
We understand that some product issuers’ TMDs, including those written using the FSC standard, have included a ‘diversification statement’. This statement is not a requirement in the relevant legislation and guidance, and we don’t believe that it is necessary to enable construction of a diversified portfolio comprising a number of different risk profiles.
Personal financial advice is excluded conduct under the Design and Distribution Obligations (DDO) rules, as it may be appropriate for a financial adviser to advise a consumer outside of the target market to acquire a financial product, when it would be in their best interest.Regardless of the personal advice exclusion, advisers still need to report significant dealings outside the target market to us. Some product issuers using the FSC template will require reporting on all dealings outside of the target market, not just those deemed significant, however this is not the case with CFS and it is not legally required.
Our criteria for a significant dealing excludes instances where a customer has obtained a product that is not aligned to their risk profile specifically for the purposes of using the product, in combination with others, to arrive at a diversified portfolio that meets their risk profile.
Example:
Cathy sees a financial adviser to create an investment portfolio to save for a medium-term savings goal. The personal advice process uncovers that it is in Cathy’s best interests to invest in a portfolio of medium risk with CFS, comprising 40% cash, 30% fixed interest, and 30% in shares. As a result, investment options are recommended to Cathy to create exposures to each asset class. In this case, Cathy has been provided with personal advice, so the adviser doesn’t need to satisfy any reasonable steps obligations. As Cathy has been recommended each investment option as part of a diversified portfolio, this wouldn’t give rise to any significant dealings reporting to CFS.
To clarify going forward however, we plan to include a diversification statement in our TMDs in early 2022.
More information
If you have any questions, please contact your Business Development team.
Alternatively, for FirstChoice please call Adviser Services on 13 18 36, or for FirstWrap please call FirstWrap Service and Support on 1300 769 619 (Monday to Friday, 8:30am to 6pm, Sydney time).
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Avanteos Investments Limited ABN 20 096 259 979, AFSL 245531 (AIL) is the trustee of the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557 and issuer of FirstChoice range of super and pension products. Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (CFSIL) is the responsible entity and issuer of products made available under FirstChoice Investments and FirstChoice Wholesale Investments.
Information on this webpage is provided by AIL and CFSIL. It may include general advice but does not consider your individual objectives, financial situation, needs or tax circumstances. You can find the target market determinations (TMD) for our financial products at https://www.cfs.com.au/tmd which include a description of who a financial product might suit. You should read the relevant Product Disclosure Statement (PDS) and Financial Services Guide (FSG) carefully, assess whether the information is appropriate for you, and consider talking to a financial adviser before making an investment decision. You can get the PDS and FSG at www.cfs.com.au or by calling us on 13 13 36.