FPA suggests risk rating financial products

The Financial Planning Association (FPA) has suggested that the Government should consider applying a risk rating to financial products, utilising guidance from the Australian Securities and Investments Commission (ASIC).

In a submission filed with the Senate Economic Legislation Committee, the FPA has suggested that target market determinations of products with high risk ratings should be required to include a stronger consumer warning and a recommendation to seek personal financial advice about the product.

The submission, part of the Senate Committee’s review of the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018, also saw the FPA urge the parliamentary committee to ensure the consumer protection mechanisms introduced under the Future of Financial Advice reforms, particularly the best interest duty, were not impacted by the new legislation.

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“There is no benefit, and potentially a significant consumer detriment, in also applying the product design and distribution obligations to personal financial advice,” the FPA submission said.

“While the target market determinations to be introduced under this Bill are a positive step forward, some products are complex and present a significant risk to consumers that may not be fully represented or understood under the requirements in the Bill,” it said, suggesting that a risk rating might be considered.

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As Ive said before a risk rating is essential (possibly colour coded ) for all products to make it simple for investors. This should be outsourced by ASIC. Complex products need independent study !

If they do this then it should include ALL investment products including residential property, direct shares, cryptocurrencies, CFDs, peer to peer lending etc.

The history of financial services regulation has been to chronically overregulate one sector of the industry and completely ignore others. This just forces consumers into the far more dangerous unregulated sectors, to avoid the costs, complexity and bureaucracy that overregulation imposes. End result is that consumers are worse off.

The biggest consumer investment losses in the next 5-10 years are going to come from residential property and SMSFs. These products have been widely recommended by real estate agents and accountants who haven't been subject to the stifling regulatory regime of licensed financial advisers.

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