ASIC concerned about institutional ownership

The Australian Securities and Investments Commission (ASIC) has released a report in which it expressed concerns about the number of some of the largest financial advice groups being owned by product issuers. 

ASIC has released its 'Review of financial advice industry practice: Phase 2’, which was based on a questionnaire sent to the top 21 to 50 Australian Financial Services Licensees (AFSLs). 

“We observed that around half the licensees were either wholly owned or majority owned by a product issuer,” ASIC stated in the report. 

“We also observed that the majority of licensees’ income was received from product issuers. This may give rise to  both potential and actual conflicts of interest, especially where advisers  recommend products issued by related parties.” 

Management of such conflicts of interest remains a critical risk that requires ongoing attention from licensees, the regulator added. 

Another risk ASIC identified was product concentration, saying any product failure would have a much greater impact on licensees whose product  recommendations are concentrated into a small number of products. 

“Licensees should consider whether excessive product concentration represents a risk to their business, and how this risk can best be managed,” ASIC recommended. 

The regulator expressed these concerns only days after it was reported ASIC did not have particular concerns about institutional ownership, claiming those conflicts of interests were so far well managed. 

ASIC’s report Phase 1, which was released in 2011 and based on a survey sent to the 20 largest dealer groups in the country. 

The most reported high-impact risk to the businessidentified by the top 21 to 50 licensees was non-compliance with legislation, whereas the most reported high-probability risk was the provision of inappropriate advice, the regulator found.