ASIC hits at grandfathered remuneration
The Australian Securities and Investments Commission (ASIC) believes there are remuneration structures still in existence in the financial planning industry which may be legal but which have a negative effect on consumers.
ASIC commissioner, Greg Tanzer, has used an address to an industry conference to seemingly question the moral validity of some grandfathering arrangements.
"... many industry participants continue to receive conflicted remuneration due to there being a number of exemptions and grandfathering arrangements in place for the ban on conflicted remuneration," he said. "While these remuneration structures are legal, they may have a negative effect on the advice provided to consumers."
Tanzer said for this reason, ASIC continued to regard conflicted remuneration arrangements as a key risk indicator.
He also pointed to ASIC concerns about conflict arising out of vertical integration and pointed to what he described as "inherent conflicts of interest" that might not be readily identifiable by consumers.
"We are all aware of the trend towards greater vertical integration in the superannuation and investment management space," Tanzer said. "There are benefits to vertical integration, for example, with respect to integrated product solutions for customers. Moreover, the financial capacity of these businesses means they are more readily able to ensure compensation for their clients when there is a decision against the business through the Ombudsman scheme."
However he said there were "inherent conflicts of interests that are created by vertical integration that may not be readily apparent to consumers" and noted that ASIC was looking at conflicted remuneration within vertically integrated structures including a current surveillance project.
"ASIC is conducting a surveillance project looking at conflicts of interests in vertically-integrated structures and how those conflicts are managed. This project is expected to operate until mid-2015, with a report of our findings being released shortly thereafter," Tanzer said. "ASIC is currently focussing on the quality of advice, and potential mis-selling of financial products in large vertically-integrated advice businesses."
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