ASIC warns advisers: know your product

Matthew Smith


July 18, 2018

Advisers and advice businesses need to have a clear understanding of the products they’re selling and whom they are selling them to if they want to avoid the ire of a beefed-up regulator, ASIC deputy chair Peter Kell has warned.

ASIC has made financial product design and distribution obligations a priority and has been granted new intervention powers in this area, Kell said.

Speaking at a Pritchitt Partners lunch in Melbourne on Tuesday, Kell said there must be more accountability among issuers and distributors of investment products.

“There will no longer be the opportunity for product manufacturers to shift blame to product sellers and vice versa when something goes wrong, which has been an unfortunate feature of the financial services industry for too long,” Kell told an audience of representatives from the funds management and advice industry.

Poor product design and lack of transparency, along with the disconnect between the explanation of investment products and client-centric advice, were among the top issues participants at Professional Planner’s June Licensee Summit identified as essential to address before trust in the industry could return.

To address this, the government has consulted on a new intervention power to enable the regulator to intervene when a product is identified as creating a risk of consumer detriment, Kell explained.

ASIC’s attention and new powers in the area have taken oversight of the design and distribution of financial products to the “next level”, said Damien McIntyre, chief executive and founder of Grant Samuel Funds Management, which is a responsible entity for several investment firms’ products.

“What the regulator is trying to do is make products more transparent and protect consumers, which is a good thing because transparency of fees and ensuring the right products find the right customers is a good thing and will serve only to lift confidence in the industry,” McIntyre, who attended Kell’s speech, said. “The regulator wants to be certain those who are selling products understand what’s under the bonnet and also who is investing in them.”

Appropriateness and disclosure of fees is another area where the regulator will look to enforce its new powers, Kell said.

ASIC made its position on commissions clear in its submission to the Hayne royal commission, where it stated that grandfathered commissions should ultimately be banned.

In his speech this week, Kell pointed to the charging of ongoing fees without providing service as an example of where the advice industry’s promise and performance diverge.

ASIC reboot

Kell’s Melbourne speech was his first as co-deputy chair and the first since the Treasurer and Minister for Revenue and Financial Services said ASIC’s penalties and powers would be upgraded based on the recommendations of the Enforcement Review Taskforce.

Following an announcement in early July, Kell will now share his deputy chair role with Daniel Crennan.

Kell noted that ASIC’s reforms, and proposed reforms, included:

  • Stronger and clearer rules about the obligation of licensees to report breaches to ASIC honestly and in a timely manner
  • Greater ability for ASIC to take regulatory action against senior managers or controllers of financial services businesses
  • The power to direct licensees to take particular remedial actions, such as consumer compensation programs
  • Stronger penalties for licensees. For example, a breach of section 912A, the “efficiently, honestly and fairly” obligation for licensees, does not incur a penalty, but would under proposed reforms.

TOPICS:   asic,  ASIC deputy chairman Peter Kell,  regulation

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