Call for ASIC probe into gearing by advisers
The Australian Securities and Investments Commission (ASIC) should investigate the continued use of gearing strategies by financial planners, according to Boutique Financial Planning Principals Group (BFPPG) director Bruce Baker.
The collapse of Storm Financial has “highlighted the need for an industry-wide examination by ASIC of gearing strategies by advisers and dealer groups”, said Bruce Baker, also government and ASIC liaison officer for BFPPG.
“Commission-based advisers have a major incentive (conflicts of interest) to recommend gearing, and it’s now high time for ASIC to investigate this style of advice," Baker said.
He said ASIC as the regulator should be challenging advisers and dealers who are promoting gearing to “put up a reasonable basis for using gearing, or desist from using it”.
“Unfortunately, it is doubtful that many financial planners who are promoting gearing have a reasonable basis for their strategies (in accordance with Corporations Law).”
He said his assessment of gearing into shares, based on modelling gearing strategies into US shares over 70 years, is that you need to be a good market timer to make gearing work.
“The long-term data suggests that a long-term buy-and-hold gearing strategy works during bull markets, but fails very badly at other times.
“So a long-term buy-and-hold gearing strategy is potentially a very dangerous strategy.”
Baker’s call follows the announcement of a Parliamentary Joint Committee on Corporations and Financial Services last month.
The committee will inquire into the issues associated with recent financial product and services provider collapses, such as Storm Financial and Opes Prime.
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