Planners should look beyond trust in ratings houses

22 January 2015

Financial planners should engage in greater scrutiny of the products they recommend and lift their knowledge about compliance and risk management issues as this is often overlooked by research houses.

At the same time financial planners and licensees should not automatically accept that the compliance committees retained by product issuers are fully capable of ensuring the product does not breach its constitution according to Know Compliance director Mei Ling Perry.

Perry, who formerly worked with the Australian Securities and Investments Commission (ASIC), and now provides compliance consulting services said that compliance committees are an area of concern because they are not adequately examined by either ASIC or research houses.

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"They have a duty to report breaches when directors don't report them but some are not qualified to do so and are appointed because of ‘old boy networks' and are figureheads without a clue as to what they should be doing," Perry said.

Perry also stated that while ASIC kept an active register of authorised representatives and auditors it did not keep a register of compliance committee members nor did it track their movements and qualifications and suitability for the task.

"There are no current requirements for records to be kept about the relationship between directors and compliance committees, what they are doing in the latter role and their ability to carry out the compliance task with recommendations from a previous inquiry into this area not being adopted at all," Perry said.

Planners should consider looking past the research house view as well according to Perry because research houses only examine the investment quality of the product and not its ability to be legally compliant as well.

"Planners need to look beyond the investment risks and not rely solely on research houses which work with the tension of being able to maintain their reputation while still producing affordable research results," Perry said.

"However the examination of a compliance committee requires checking whether the people are able to carry out their legal obligations and not the quality of the product."

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