ASIC's criticism not representative: AFA

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The Australian Securities and Investments Commission has criticised financial planners’ advice to investors about capital protected products as being poor.
In a statement yesterday, ASIC said it found many advisers did not make adequate enquiries into their clients’ personal circumstances when providing advice on capital protected products.

Its report on the topic found in around half of the cases, there was insufficient evidence to show advisers had met their obligations to investigate clients’ relevant circumstances, the subject matter of the advice and then to provide appropriate recommendations.
But Association of Financial Advice CEO Brad Fox said ASIC’s research is on a small, unrepresentative sample of advisers. However, structured products do fit a niche of investors, he said.

“It is an example of the burden of proof that advisers have, to justify the fit between the advice solution offered and the client’s personal circumstances.”

The report is part of ASIC’s ongoing review into providing complex capital protected products to retail investors, after the regulatory body investigated in May and became significantly concerned.

ASIC reviewed five pieces of advice from 10 firms providing these products to retail investors. The majority of advice reviewed was provided in 2012 and had to comply with section 945A of the Corporations Act 2001, requiring an adviser to have a ‘reasonable basis’ for the advice.
That section of the law has since been replaced by the FOFA reforms, which include a requirement that advisers must act in the best interests of their clients.

ASIC deputy chairman Peter Kell warned financial advisers to step up their game to give investors better advice on complicated topics, or feel the force of the regulatory whip.

“The findings were disappointing and with FOFA now raising the bar for advisers, our warning against inappropriate selling of complex products cannot be clearer.

“Capital protected products are complex and can be difficult for investors to understand. Advice about them needs to be appropriate and accurate. Where it isn’t, we will take action.”
ASIC is considering putting more regulations in place to deal with its concerns and will keep watch in case more enforcement is needed, Kell said.

“We will also ensure that where we have significant concerns with the advice provided to individual clients, those clients have their position appropriately reviewed.”

The report is part of ASIC’s crackdown on the sale of complex products promoted as having capital protection or a capital guarantee, or as offering ‘contingent’ or ‘conditional’ forms of protection.
ASIC found:
  • Advisers narrowing the scope of advice to a single structured product or focusing on one product, rather than considering a range of potentially suitable products
  • A ‘one-size fits all’ approach, with inadequate consideration of the client’s needs and circumstances and alternative strategies or asset allocation, with a lack of diversification
  • Unsuitable gearing recommendations or a lack of evidence to support gearing recommendations. For example, to clients who may not have been able to afford the loan interest payments, or tax-driven advice where relevant risks were not highlighted
  • Misrepresentation of the product’s recommended features, including the degree of safety or capital protection.

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