Failed funds: How you can save them

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The AIOFP have released a list of all the failed and frozen funds in Australia from January 2006 to November 2012, and discovered one common factor – they all paid a research house to rate their product.

The list contains 155 individual structures with varying asset classes, from Great Southern Agribusiness, valued at about $4bn, to DWS Strategic Value Fund at $100,000.

AIOFP Executive Director Peter Johnston said financial planners were now the only ones who could stop the conflicted practise of using research houses that accept payments from product manufacturers.

“ASIC can only do so much to intervene in commercial terms. Advisers are the only faction that should be paying research houses and must start refusing to use research houses who accept payments from product manufacturers,” he said.

In 2011 the AIOFP produced an article suggesting that every adviser should be levied a yearly fee, say $1,000, managed by ASIC to fund a panel of research houses who only supply information to advisers and are not permitted to accept any payments from product manufacturers.

The panel would then also scrutinise all PDS's, which are not currently being checked for commercial viability by ASIC before market release.

"Unfortunately we have all been under the illusion that ASIC assess the PDS’s before market – they don’t, they continually say they don’t but no one is listening," said Johnston.

"[Research houses] are unofficially empowered with the decision making role on which manufacturer’s products are good, bad or exceptional and whether they commercially survive.

"They have unfortunately become the unofficial ‘gate keepers’ of the industry with far too much power in our view."

More stories:

Accountants' SMSF licensing should be eradicated

Adviser warning: Rethink asset-based fees

Why researchers must be held accountable

 

  • GAB on 11/01/2013 10:20:11 AM

    The title of this article doesn't make sense. But apart from that, i agree with Peter's views totally. Lonsec and others have to accept some responsibility and maybe they do, but it's the adviser and their dealer groups that are made to fork out compensation thanks to that nasty little "know your product" rule, which can in reality catch anyone out, especially if the fund in question starts changing the portfolio around and taking more risks without telling anyone. How would an adviser know? It's one of the risks of investing and placing your faith in another entity. Yet the advsier still cops the flack. Amazing really, and it has to stop. Needs to start with dealer groups and platforms first.

  • Leanne on 11/01/2013 11:11:10 AM

    We already pay our licensee fees and but of the services they provide is a quality recommended list that had no failed investments. I don't need to pay more to stay away from risk investments that we didn't and never will invest in.

  • Wayne Leggett on 11/01/2013 11:13:49 AM

    Let's see how this works.
    ASIC requires licensees to demonstrate that they have researched products before their addition to a APL. Licensees won't approve a product that doesn't have a good research rating. Product manufacturers can't get their product on a APL without first getting the research houses to favourably rate their product and research houses, in the main, are paid by the product manufacturers. How could anyone be surprised that such a system failed?

  • GAB on 11/01/2013 12:13:35 PM

    Must be a pretty small list Leanne

  • Wally on 11/01/2013 3:16:32 PM

    Leanne, i don't think you're being completely honest. No mortgage funds on the list? You sound like the people who tipped every winner on the weekend. Only they tell you this on Monday.

  • Pat on 11/01/2013 5:10:42 PM

    And where is the adviser responsibility? The adviser (AIOFP member perhaps) who relied blindly on a research house rating to recommend a hedge fund (Astarra) that failed. Or is the excuse they relied on the licensee who relied on the research house. Did the AIOFP effectively endorse Astarra?

  • Max on 16/01/2013 5:23:32 PM

    I think there might actually have been three common factors, the second being the high level of upfront commission associated with many of the failed funds and the third being the strong level of support these were given by the AIOFP.
    I'm not excusing the research houses for their role, just that a large majority of Australian advisers were able to independently evaluate the merits, or otherwise, of these funds.

WP forum is the place for positive industry interaction and welcomes your professional and informed opinion.

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