Protections needed on complex product sales
Systems should be in place to protect customers who are subject to the direct sale of complex financial products, according to a key report released today by the International Organisation of Securities Commissions (IOSCO).
The report, Suitability Requirements with respect to the Distribution of Complex Financial Products, sets out principles relating to the distribution of complex financial products by intermediaries to retail and non-retail customers.
The report focuses on a range of complex products including options, hedge funds, variable insurance products, direct participation programs/limited partnerships and real estate investment trusts.
Dealing with the question of when consumers purchased a complex financial product without any intermediary financial advice or recommendation, the IOSCO report said "the regulatory system should provide for adequate means to protect customers from associated risks".
On the question of how advisers should conduct themselves, the report stated that "whenever an intermediary recommends the purchase of a particular complex financial product, including where the intermediary advises or otherwise exercises investment management discretion, the intermediary should be required to take reasonable steps to ensure that recommendations, advice or decisions to trade on behalf of such customer are based upon a reasonable assessment that the structure and risk-reward profile of the financial product is consistent with such customer's experience, knowledge, investment objectives, risk appetite and capacity for loss".
The preamble to the IOSCO report makes the point that the global financial crisis had raised concerns about the growing complexity of financial products.
"In particular, the collapse of Lehman Brothers in September 2008 highlighted the extent to which intermediaries failed to assess the suitability of structured investment products for retail and non-retail customers," it said.
Recommended for you
The FSCP has announced its latest verdict, suspending an adviser’s registration for failing to comply with his obligations when providing advice to three clients.
Having sold Madison to Infocus earlier this year, Clime has now set up a new financial advice licensee with eight advisers.
With licensees such as Insignia looking to AI for advice efficiencies, they are being urged to write clear AI policies as soon as possible to prevent a “Wild West” of providers being used by their practices.
Iress has revealed the number of clients per adviser that top advice firms serve, as well as how many client meetings they conduct each week.
