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.