Design & Distribution Obligations (DDO)

By October 2021, the Product Design and Distribution Obligations (DDO) require the issuer of a financial product to determine that there is an appropriate target market for its product(s) and ensure that its products have key attributes which are likely to be consistent with the likely objectives, financial situations and needs of a class of consumers to whom the product is targeted.

DDO also sets out the ‘reasonable steps’ that must be taken for the distribution of a financial product by both the issuers and distributors of financial products to ensure that the product is distributed to investors who fall within the Target Market Determination (TMD).

As a product issuer Morningstar is required to make a target market determination (TMD) for a product. The TMD must be in writing and must clearly set out details relating to the target market which the financial product will be offered. The DDO requirements are intended to help investors obtain appropriate financial products by requiring issuers and distributors to have a investor-centric approach to the design and distribution of products.

Therefore it’s our responsibility to create a TMD for each of our products offered that:

• Describes the Target Market: outlines the likely objectives and needs of customers the product has been designed for.
• Establishes Distribution Conditions: details the conditions or restrictions on the sale of the product.
• Establishes Reporting Requirements: sets out the relevant information that must be provided to us by distributors at our required frequency.

A TMD, issued for a specific product, is a document which describes the target market for whom the product is likely to be consistent with their objectives, needs and financial situation. Each TMD also details any distribution condition and circumstances where we might have to review the target market determination for a particular product.

These are available to distributors and Financial Advisers of our products at morningstarinvestments.com.au/tmd.

For you as an investor you do not need to review the TMDs but during your application process we have included a number of filtering questions that every investor will be required to answer to simply ensure that our products are suitable for you as an investor.

Distributors are required under section 994B(5)(g) and (h) of the Corporations Act 2001 (Cth) (the Act) to report to Morningstar:

• Complaints (as defined in section 994A(1) of the Act;
• Significant dealing outside of target market, under s994F(6) of the Act; and
• To the extent a distributor is aware, dealings outside the target market, including reason why acquisition is outside of target market, and whether acquisition occurred under personal advice.

For more information on distributor reporting requirements, methods, and deadlines, please visit morningstarinvestments.com.au/distributor-report.

What are the key obligations for Morningstar as a product issuer?

Our key responsibilities as a product issuer are:

• To create and maintain the TMDs for all our products that are covered by DDO; and
• To take reasonable steps to ensure our products are distributed in line with those TMDs.

How does DDO impact me as the investor?

There is no impact to the investor in terms of additional documentation that the investor to be provided. The only difference is the application process which now includes a number of target market related questions that every investor has to answer.

How does Morningstar determine whether an investor is within the product’s TMD?

During the application process the investor will have to answer a number of target market related questions to determine if they are in the product’s target market. These questions cover your understanding of key features and risks associated with the product.

What occurs to my application if I am outside the product’s TMD?

Morningstar will assess any applications that sit outside the product’s TMD and contact the investors that are not in the target market.

How do I contact Morningstar if I have any queries?

For any DDO related queries, please email Morningstar at [email protected].