However, Mr Derham said there is still a lot of ambiguity around how this regime actually applies to SMSF advisers and their clients.

“The SMSF Association has been dealing with regulators and government bodies trying to work out how the design and distribution obligations actually apply to the [SMSF sector],” he said.

Mr Derham said that while he was not aware of anyone actually issuing a target market determination for an SMSF, there may potentially be some situations where the regime applies.

“A product disclosure statement or prospectus is normally what triggers the need for a target market determination. There are some carve-outs for things like listed equities that don’t need them,” he explained.

“There are two main questions that we’re getting questions about, and the first one is whether it applies to an SMSF.”

While Mr Derham said it seems ridiculous for an SMSF trustee to have to issue a target market determination about who the interests in the SMSF are appropriate for when the members are the trustees, this issue has not actually been resolved yet.

“It goes back to the age-old question of whether an SMSF trustee has to issue a PDS to its members? I think the better view is that it does. If not at set-up, then definitely at the change from accumulation to pension phase,” he said.

“There are some arguments that it’s not needed at set up because if the trustee can reasonably believe that the recipients have access to all the information that would otherwise be in a PDS, then they don’t need a PDS. That’s a technical argument for the set-up phase. So, if a PDS is required by the trustee to the member, then doesn’t it follow that a target market determination is required?”

Before the design and distribution regime was created, ASIC made submissions to Treasury calling for SMSF promoters to be subject to the regime.

Mr Derham said this would have restricted advisers from being able to recommend an SMSF to someone whose balance is less than $500,000, with a couple of exceptions.

“The government ignored ASIC’s submissions there, and there was some acknowledgement by ASIC that the TMD regime may not apply to SMSF trustees,” he noted.

The second issue relating to SMSFs, said Mr Derham, is where an adviser has a more conservative client and they want to recommend an exposure to a more risky product, but the target market determination states that it’s only appropriate for a higher-risk audience.

“What do you do in that situation? If you get your client or clients to invest in a product that is outside the target market determination, that is known as a significant dealing, and you’d have to tell the product provider about that within a certain time frame. It’s a bit of a pain,” he said.

“The Financial Services Council came out with a published view on this and said in their guidance that the product should be assessed against the consumer’s attributes for the relevant portion of the portfolio rather than the consumer’s portfolio as a whole.”

Mr Derham said this means that if an adviser wants a client to invest in a high-risk product with a conservative risk profile but only wants 10 per cent of the portfolio in that high-risk product, then they only need to look at the client’s need for that 10 per cent that’s high risk.

“For example, an [ETF provider might say] that for a conservative client, the client’s portfolio exposure to one of their high-risk ETFs would have to be greater than 25 per cent before that would be a significant deal and you’ve have to tell them that you’d done it.

“So if it’s a conservative investor and you want them to have a small exposure that’s less than 25 per cent, you can do that. It’s okay,” he said.