Research house and dealer group roles queried on product failure

27 June 2017

A Federal Parliamentarian has queried whether research houses and dealer group investment committees should be held responsible for products placed on approved product lists.

In discussion around financial services product manufacturers being required to stand behind their products, Queensland Liberal National Party backbencher, Bert van Manen pointed to the amount of scrutiny applied to financial advisers in recent years, and queried why similar scrutiny was not applied elsewhere in the product manufacturing/approval chain.

“…This has been part of my frustration over the last few years with the whole financial services reform process,” he said. “Largely the advisers have borne the brunt of the changes, yet, for a product to be available to an adviser to recommend, first there is the product issuer, and then there is a research house or multiple research houses that have done research reports on the particular product, and then it has gone to the investment committee at the dealer group.”

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Asking questions of the Australian Securities and Investments Commission (ASIC) before the Parliamentary Joint Committee on Corporations and Financial Services, van Manen said all these things needed to happen before a product went on an APL.

“All of those other steps up the ladder have not been addressed,” he said.

“Where has the responsibility been sheeted home to? The dealer groups and their investment committees, for putting products on approved lists when maybe they should never have been there, and those sorts of things.”

van Manen said he was pleased to see that a start was being made to dealing with product issuers, but he believed “there are a couple of other steps in there in terms of research houses and the investment committees at the dealer groups that are making these decisions before it even gets to the adviser”.

ASIC deputy chairman, Peter Kell said he believed some part of the product/manufacturing chain would be captured in the legislation which would underpin an ASIC product intervention power because of the “decision-making process for how the product is actually framed and how it gets into the hands of customers”.

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ASIC would be in no hurry to apportion blame to a product manufacturer or their "research partners". They don't pay compensation. Best to let the crap flow down the line to the financial adviser or their licensee. Better chance of getting some PI cover paid out or a determination from FOS. Investors get paid's a win in ASICs eyes.

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