ASIC has made interim stop orders preventing Advance Asset Management Limited (Advance) from offering or distributing three funds to retail investors because of non-compliant target market determinations (TMDs).
The funds are:
- Advance Balanced Multi-Blend Fund (ARSN 087 296 375), with $1.7 billion in assets under management (AUM);
- Advance International Shares Multi-Blend Fund (ARSN 087 295 501), with $1.4 billion in AUM; and
- Advance Property Securities Multi-Blend Fund (ARSN 094 112 580), with $1.1 billion in AUM.
Advance Asset Management is the specialist asset management business within BT Financial Group. Advance held a total of approximately $27.8 billion in AUM across all its registered funds. The three funds that are the subject of the stop orders together held a total of $4.2 billion in AUM. (All AUM figures are as at June 30 2022, and not adjusted for investments between funds.)
The orders stop Advance from issuing interests in, giving a product disclosure statement for or providing general advice to retail clients recommending investment in these funds. Advance was served the interim orders on 14 March 2023. The orders are valid for 21 days unless revoked earlier.
ASIC made the interim stop orders to protect retail investors from potentially investing in funds that may not be suitable for their financial objectives, situation or needs. ASIC considered that the approach taken by Advance did not meet the appropriateness requirements under the design and distribution obligations (DDO).
ASIC considered that the TMDs were very broadly drafted and failed to define key concepts. For example, Advance described investors in the target market for the Advance Balanced Multi-Blend Fund as having the tolerance to invest at the ‘medium to higher’ end and investors in the target markets for the Advance International Shares Multi-Blend Fund and Advance Property Securities Multi-Blend Fund as having the tolerance to invest at the ‘higher end of the risk spectrum’ but did not define what these concepts meant. It is therefore not possible to accurately determine which retail investors fall within the target market for each fund.
ASIC also considered that the distribution conditions outlined in the TMDs were inadequate. Furthermore, the TMDs did not adequately specify:
- the information that distributors must report to Advance so that Advance can determine whether a review trigger has occurred;
- the period for reporting this information to Advance; and
- the review triggers for the TMDs.
ASIC expects Advance to consider the concerns raised about the TMDs and take immediate steps to ensure compliance. ASIC will consider making final orders if the concerns are not addressed in a timely manner. Advance will have an opportunity to make submissions to ASIC before any final stop orders are made.
ASIC reminds financial product issuers that under DDO, they must define target markets for each of their products appropriately, with sufficient granularity, having close regard to the risks and features of the specific product. Issuers also need to consider how their product will reach the target market, and have appropriate conditions in place to ensure the product is distributed to them.
DDO requires firms to design financial products that meet the needs of consumers, and to distribute those products in a more targeted manner. An important requirement under DDO, a TMD is a mandatory public document that sets out the class of consumers a financial product is likely to be appropriate for (target market) and matters relevant to the product’s distribution and review.
ASIC has targeted surveillances underway to check whether product issuers and distributors are complying with DDO. Where firms are not doing the right thing, ASIC can take quick action under DDO to disrupt poor conduct and prevent potential consumer harm.
To date, ASIC has issued 27 DDO interim stop orders. Of these, 19 interim stop orders have been lifted following actions taken by the entities to address ASIC’s concerns or where the products were withdrawn, and eight remain in place.
© Australian Securities and Investments Commission. Reproduced with permission.