Why ASIC is cracking down on dealer groups
In recent weeks, the Australian Securities and Investments Commission has taken a hard line against some of the industry’s most high profile dealer groups.
The investment watchdog revoked the dealer's licence of Sydney-based Chapel Road just over a month ago, leaving its 40 planners with no source of income and no authority to continue their businesses. ASIC is also understood to be investigating a number of other groups with a view to revoking their licences.
It is certainly not the first time that ASIC has cracked down on dealer groups who it believes have been lax with their compliance procedures. About 18 months ago, Westpac and Suncorp Metway were forced to significantly tighten up their compliance procedures or face the wrath of the regulator.
But it is the first time that ASIC has taken the extreme step of revoking licences of dealer groups of this size and forcing such large number of planners to seek proper authorities under separate dealer licences.
So why is ASIC suddenly taking such a tough stance on dealer groups? It seems the answer to this question is twofold.
The four dealer groups that are understood to be under surveillance have one thing in common. They are all strong supporters of tax-effective strategies for their clients involving investments in agricultural-based businesses.
The three months preceding the end of the financial year are traditionally the busiest times for financial planners. Many dealer groups do more than half of their business in this quarter.
It is the time planners are called on by high net worth clients to seek strategies to minimise tax. Often this means cashing in non-performing investments or topping up superannuation contributions. It can also mean investing in tax-effective agricultural schemes.
A number of these schemes have produced very good long-term returns for investors. But a number have also produced huge losses for clients due to tax deductions being disallowed by the tax office and the failure of underlying businesses.
So by making an example of certain dealer groups, ASIC is warning the financial planning community at large that it will investigate dealer groups who it feels are using high commission agricultural investments excessively solely to minimise tax for their clients.
Taxation has been the top
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