ASIC to keep monitoring complex product advice
The corporate regulator will keep monitoring advice provided on complex investment products as it reviews its approach to regulating this area.
The Australian Securities and Investments Commission (ASIC) has published Report 384 regulating complex products, outlining the risks posed by such products to retail investors and identifying opportunities for further work where appropriate.
The regulator regarded financial advice as increasingly critical where investors may have difficulty in assessing the risks associated with the product.
“Our recent review of advice files where structured products were recommended to investors identified cases where advisers did not communicate the key features and risks accurately to clients,” the report said.
“In some cases, advisers may have misrepresented the product as being less complex than it was.”
ASIC said it would continue to review the quality of financial advice provided to clients in this area, saying it would take a risk-based approach.
Many clients still invest in complex products without seeking financial advice, according to ASIC.
“We will explore the potential for using investor self-assessment tools to assist investors in testing their understanding of particular products before investing,” the report said.
The review comes as the low-yield environment and non-trending equity market over recent years has contributed to the development of new products that have the potential to introduce new types of complexity, according to ASIC Commissioner Greg Tanzer.
“Complex products, due to their nature, can be difficult for investors to understand. This can lead to them being mis-sold, particularly when investors are searching for yield,” Tanzer said.
“We want those institutions selling these complex financial products to consider the risks outlined in this report in the context of their own business. It’s not a sustainable business model if your customers are losing money.”
Recommended for you
Quarterly Wealth Data analysis has uncovered positive improvements in financial adviser numbers compared with losses in the prior corresponding period.
Holding portfolios that are too complex or personalised can be a detractor for acquirers of financial advice firms as they require too much effort to maintain post-acquisition.
As the financial advice profession continues to wait on further DBFO legislation, industry commentators have encouraged advisers to act now in driving practice efficiency.
New Zealand’s financial regulator is following the footsteps of its Tasman neighbours and proposing to conduct a review on improving the accessibility of financial advice and advice business models.
