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 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.
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.
Need more information?
If you have any questions, please contact your local 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, 8am to 7pm, Sydney time).
Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (CFSIL) is the issuer of FirstChoice Personal Super, FirstChoice Wholesale Personal Super, FirstChoice Pension, FirstChoice Wholesale Pension, FirstChoice Employer Super offered from the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. CFSIL also issues interests in products made available under FirstChoice Investments and FirstChoice Wholesale Investments. Colonial First State (CFS) is Superannuation and Investments HoldCo Pty Limited ABN 64 644 660 882 and its subsidiaries which include CFSIL. The investment performance and the repayment of capital of CFSIL products is not guaranteed.
Avanteos Investments Limited ABN 20 096 259 979, AFSL 245531 (AIL) is the trustee of the Avanteos Superannuation Trust ABN 38 876 896 681 which includes FirstWrap Plus Super and Pension, and is the operator of The Avanteos Wrap Account Service which includes FirstWrap Plus Investments. Colonial First State (CFS) is Superannuation and Investments HoldCo Pty Limited ABN 64 644 660 882 and its subsidiaries which include AIL. The investment performance and the repayment of capital of AIL products is not guaranteed.
This is based on the understanding of current regulatory requirements and laws as at December 2021. While all care has been taken in the preparation of this document (using sources believed to be reliable and accurate), to the maximum extent permitted by law, no person including CFSIL, AIL nor any related parties, their employees or directors, accepts responsibility for any loss suffered by any person arising from reliance on this information. This document contains general information strictly for adviser use only and is not to be handed to any investor. It does not take into account any person’s individual objectives, financial situation, needs or taxation circumstances. You should read the relevant Product Disclosure Statement (PDS), Financial Services Guide (FSG) or Investor Directed Portfolio Service Guide (IDPS Guide) before making any recommendations. Investors should read the relevant PDS, FSG or IDPS Guide before making an investment decision and consider talking to a financial adviser. Investors can obtain FirstChoice PDSs and the FSG from www.cfs.com.au or by calling 13 13 36 and FirstWrap PDSs, FSGs and IDPS Guides from their adviser or www.firstwrap.com.au.