Outsource PDS approvals to independent research body

The Australian Securities and Investment Commission (ASIC) should outsource the approval of product disclosure statements (PDS) to an independent research panel funded by a levy paid by financial planners, according to an industry association. 

The Association of Independently Owned Financial Planners (AIOFP) made the suggestion as part of its submission to the Financial System Inquiry (FSI), claiming that it would improve the quality of PDSs approved by ASIC and prevent research houses approving poor products. 

The AIOFP stated that planners and consumers mistakenly believed that ASIC acted as a filter in the market and had examined PDSs before release to market. However the regulator only registered them. 

The AIOFP also stated research houses actually acted as gatekeepers and had approved all but one of 164 failed products released to market since January 2006. 

It claimed the failed funds had “purchased a positive rating from a conflicted research house to get inflows from the market” and suggested the panel model to “rectify the lack of scrutiny by ASIC of new PDS’s entering the market and eliminate the 'shopping around’ culture for ratings”. 

Under its suggested model financial planners would pay an annual fee into pool operated by ASIC to fund product research which would be conducted by research houses paid from the pooled funds. 

Research houses would examine the business model, sustainability, directors and likelihood of success of products seeking release to market providing both a research house and regulatory approval on PDSs that were approved. 

The AIOFP stated the model would force advisers to fund research and move research houses away from conflicted 'pay for ratings’ models that are currently in use.




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