Super and planning

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ASIC urges curbs on financial planners

By Pam Walkley,
Money Magazine, October 2009

The corporate watchdog, the Australian Securities and Investments Commission, has recommended more stringent regulation of financial planners to increase protection for retail investors, in the wake of recent collapses including financial planner Storm Financial, broker Opes Prime, agribusiness operators Great Southern and Timbercorp, and corporates such as ABC Learning, Allco and Babcock & Brown.

In its submission to a joint parliamentary inquiry into financial products and services which is due to report and make recommendations to the government by the end of the year, ASIC recommends that advisers be required to act only in the best interests of their clients.

It says the way many financial planners are now paid, such as commissions, volume-based bonuses, fees paid on percentage of funds under advice and “soft-dollar” payments (kickbacks and non-monetary incentives) should be banned.

Despite expressing overall confidence in the advice industry the corporate watchdog says: “Recent collapses and ASIC’s surveillance and compliance work have identified areas for improvement.”

The wide-ranging, 184-page ASIC submission points out that 85% of financial advisers are associated with product manufacturers, so many advisers act as a “product pipeline”.

This leads to “restricted advice” because of the limited range of products an adviser is permitted to advise on. Choice of products can be influenced by which ones are more profitable for the licensee. Clients are often unaware of this.

The regulator is also asking the federal government to consider setting up a compensation scheme for investors, similar to the one in the UK, because many financial planners’ insurance cover has proved inadequate.

The corporate watchdog would also welcome the power to ban someone who is not a “fit and proper” person from giving financial planning advice, making it easier to remove “bad apples” from the industry.

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