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Fund manager hit with DDO stop order

  •  
By Laura Dew
  •  
2 minute read

ASIC has made an interim stop order preventing the firm from issuing or distributing interests in an income fund to retail clients after concerns over its reliance on a retail client questionnaire.

The Australian Securities and Investments Commission (ASIC) has made an interim stop order preventing Australian Unity Funds Management from issuing or distributing interests in the Australian Unity Select Income Fund to retail clients.

It said it was concerned that Australian Unity failed to take reasonable steps likely to result in distribution conduct being consistent with its target market determination (TMD).

The corporate regulator said Australian Unity relied on a retail client questionnaire which clients had not received financial advice were required to complete. However, there were “significant flaws” in the survey, ASIC said.

“The questions and response options were based on and relied predominantly on complex consumer attributes set out in the fund’s TMD.

“The TMD is not intended to be a consumer-facing document and there was a high risk that retail clients would not understand the questionnaire. This may lead to inaccurate responses and distribution of interests in the fund by Australian Unity to retail clients outside the target market.”

The questionnaire was also undermined by:

  • Giving prompts disclosing which response option places the retail client outside the target market.
  • Having follow-up telephone communications to provide retail clients with a further opportunity to amend their response to fit within the target market.

Under the design and distribution obligations (DDO), an issuer and distributors of a financial product must take reasonable steps that will, or are reasonably likely to, result in distribution conduct relating to retail clients being consistent with the TMD for the product.

The interim order stops Australian Unity and other distributors from dealing in interests in giving a product disclosure statement (PDS) for or providing general advice to retail clients recommending an investment in the fund. The order is valid for 21 days unless revoked earlier.