ASIC acknowledges conflicts in vertical integration
The Australian Securities and Investments Commission (ASIC) has acknowledged that the vertical integration of financial services organisations gives rise to conflicts of interest because of the cohabitation of product manufacturers, distributors and advisers.
However ASIC deputy chairman, Peter Kell has also pointed to benefits flowing from a vertically integrated model, not least the ability of major, vertically integrated organisations to provide compensation when things go on.
At the same time, ASIC chairman, Greg Medcraft admitted that there were limitations to the effectiveness of professional indemnity insurance when it came to ensuring investors were compensated for bad advice.
Giving evidence before a Parliamentary Joint Committee, Kell said there were positives and negatives with respect to vertical integration.
"In terms of changes if we were to move away from that model: that would help address one of the issues that continually comes up around vertical integration, and that is the conflicts of interest that are inherent in a model where you have product manufacturers, distributors and advisers," he said.
"On the other hand, there are some benefits to vertical integration as well. I mentioned earlier, for example, the number of unpaid disputes at FOS (Financial Ombudsmand Service) involving financial planners. None of them involve vertically integrated companies, because they have the money behind them to ultimately pay if something goes wrong," Kell said.
He said that if changes were to be considered it might therefore be necessary to consider remediation of the compensation framework, something which prompted Medcraft to suggest that PI insurance had "some distinct limitations".
"PI…is at its weakest when it is most needed—that is, when you have multiple claims coming through at a single point in time," he said.
Recommended for you
Former wealth firm director Joshua Fuoco has been convicted of contempt of court, sentenced and permanently banned from being involved in financial services after breaching a 10-year ban.
In its first FY26 action, ASIC has cancelled the AFSLs of two Sydney advice firms over their failures to pay industry funding levies.
The Federal Court has made interim travel restraint orders against two Falcon Capital directors, while also freezing one director’s assets.
For the 2025 financial year, all but one listed advice licensee has reported double-digit share price growth – but which licensee has seen the best performance and what activities have they enacted during the period?
