… and flags a greater role in keeping planners honest

The Australian Securities and Investments Commission (ASIC) has confirmed it will conduct another shadow shopping exercise next financial year.

The deputy chairman of ASIC, Jeremy Cooper, told the 2009 Self-Managed Superannuation Professionals’ Association of Australia (SPAA) conference in Adelaide that the exercise is “almost inevitably” going to include examining the advice given by financial planners to self-managed superannuation fund (SMSF) members and trustees.

“ASIC will conduct some sort of shadow shopping activity in the next financial year,” Cooper says.

“It’s too early to say what that shadow shop will look like, but it’s almost inevitably going to relate in some way to the advice given to SMSFs. And the issue of commission-driven decisions to invest in market-linked products certainly has been discussed internally as something to look at.”

Cooper has also flagged a greater role for ASIC in educating consumers about the basics of investing, as a means of making them less vulnerable to misleading or inappropriate advice.

“In future I see a much deeper role for ASIC playing in the space of communicating investment concepts to retail investors,” Cooper says.

The aims are to “educated retail investors – that’s the obvious one – but secondly, and perhaps the most powerful point, will be to raise the bar for advisers, and make it more difficult for those few advisers out there to give poor advice, when you have a regulator more active in communicating what good investment principles are all about”, he says.

Cooper says such a role by the regulator might have led to fewer people accepting advice to invest in unsecured, high-yield property-related debenture products, and to commit their entire life savings to such products.

If investors had better understood the relationship between risk and return, and the basic concept of diversification, and if that message had come from the regulator, then fewer advisers might have got away with giving such advice.

Cooper says the expected upcoming issuance of bonds by the Federal Government may help investors, by returning to the spotlight the concept of a risk-free rate of return, against which to gauge other investment opportunities.

But he says the challenge for financial planners will be “to capitalise on this important development for their clients, in circumstances where a commission-based remuneration model will not be available”.

“It would be a shame if the structural flaws in the industry prevented investors from getting access to bonds and having them as part of their portfolios,” Cooper says.

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