ASIC ‘disappointed’ with structured product advice
Many advisers did not make adequate enquiries into their clients' personal circumstances when providing advice on structured products, according to the latest report released by the Australian Securities and Investments Commission (ASIC).
The regulator's Review of advice on retail structured products found that in approximately half of the 50 reviewed files, advisers had not met their obligations to investigate clients' personal circumstances, the subject matter and then to provide appropriate recommendations.
ASIC found breaches such as misrepresentations of product features and their safety and inadequate explanation of the basis for advice. Some advisers did not provide a statement of advice to their client, the report found.
"In many cases the margins and fees embedded in structured products are not immediately clear. There was no evidence that these costs were investigated by advisers in most of the files we reviewed," the report said.
"In some cases, these embedded costs can result in relatively high commissions for advisers, which may have influenced their advice," the regulator added, pointing out that FOFA hadn't been introduced yet at the time of the review.
"Further, we were concerned that in some cases advisers did not demonstrate expertise in the products they were recommending, or communicate the key features and risks accurately to clients."
The review came as part of ASIC's ongoing review of the provision of complex capital protected products to retail investors, having expressed concerns earlier this year around the marketing of such products.
ASIC reviewed five pieces of advice from 10 Australian Financial Services Licensees who provide these products to retail investors. The majority of advice was provided in 2012 and had to comply with sections 945A of the Corporations Act 2001, which required financial planners to have ‘reasonable basis for advice'.
This sections had since been replaced by the Future of Financial Advice, which require advisers to act in the best interests of their clients.
ASIC Deputy Chairman Peter Kell said the findings of the report were "disappointing", reiterating the regulator's warning to advisers against inappropriate selling of complex products.
"Capital protected products are complex and can be difficult for investors to understand. Advice about them needs to be appropriate and accurate. Where it isn't, we will take action," Kell said.
"Where our review identified concerns with the advice provided, we are analysing the cause of the problem and considering appropriate regulatory outcomes. In some cases, we are conducting further surveillance with a view to enforcement action where merited."
Kell said a number of firms had provided ASIC with information about steps they have taken to address the issues identified, including changes to internal processes and risk controls, as well as follow-up meetings and correspondence with clients.
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