ASIC acts on non-advised platform investment

The increasing non-advised use of platforms by consumers using unified managed accounts has prompted the Australian Securities and Investments Commission (ASIC) to lift the bar for platform providers on how they select products for the platforms.

The regulator announced the new guidance late last week, with ASIC commissioner, Greg Tanzer saying the updated guidance moved with the times and recognised that, with consumers taking a more hands-on approach to investing, "their rights must be at the forefront of platform operators' minds".

The new regulatory guide provides important reading for both planners and platform providers because it outlines ASIC's broad view on the evolving relationships between planners and platform providers in the new Future of Financial Advice (FOFA) environment.

The regulatory guide suggests that "there is a trend towards new forms of vertical integration between parties in the product distribution chain", adding that "dealer groups are increasingly restructuring their operations to become platform operators to secure revenue streams".

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"This trend appears to be driven by industry responses to the FOFA reforms, particularly the ban on conflicted remuneration," the regulatory guide said. "Vertical integration could exacerbate conflicts of interest, placing IDPS operators (who are also dealer groups) in a position to direct many clients to in-house products. These trends are already evident in the market, and management of the risks associated with the behaviour is necessary."

The regulator said its review of the platform space had indicated that platform operators "do not generally disclose important processes such as how investments are selected for inclusion on investment menus".

"This lack of clear, meaningful and specific information about how investments are put onto platforms limits the ability of investors to make informed decisions about suitability. Given these changes in the platforms sector, we think that it is timely to review and revise our regulatory guidance to ensure our regulatory framework is adequate and promotes platform operators with sufficient capacity and competency to provide financial services and products to investors."

The regulatory guide then noted that "changing investor behaviour with increased demand for new investment types on platforms and greater self-direction on platforms without the use of an adviser also makes a review of our regulatory guidance timely for promoting confident and informed investors in this sector".

"While the platforms sector has historically been heavily adviser-driven, the growth of investor-driven access to platforms through, for example, ‘unified managed accounts', has developed an emerging market of investors seeking direct access to platforms that offer a broad range of investment options without an adviser," it said.

"This trend has encouraged other operators to branch out into providing access to their platforms without an adviser, and the trend is likely to continue with the introduction of the FOFA opt-in requirement."

The regulatory guide said this raised the risk that investors might not be able to understand the differences between investing through a platform and investing directly in a financial product, or investing through different platforms.