Kirkland said in a keynote address at a Professional Planner research forum on 3 December that from ASIC’s observations across super trustees and financial advisers, there is an over-reliance on the views or actions of others, including research houses.
“Where a product persistently underperforms, advisers should consider whether action is necessary and communicate a recommendation to their client,” Kirkland said.
“This should include the reasons why the recommendation is appropriate, based on that client’s circumstances.”
He continued that ASIC looked at 88 advice files across 26 advice licensees, focusing on advice on about nine investment options that all persistently failed to meet the performance benchmark in the product disclosure statement.
“Of those 88 files, 22 included a recommendation for a full replacement or redemption for the underperforming option. The remaining 66 recommended to hold, increase or partially reduce an existing investment,” Kirkland said.
“These included 11 files that contained deficiencies relating to each adviser’s lack of investigation and assessment of the underperforming option.”
These deficiencies were, he said, a major factor in advisers failing to demonstrate compliance with the best interests duty and appropriate advice obligations and concerns about the clients suffering detriment.
“Of those 11 files, seven had a recommended portfolio weighting to an underperforming option of 100 per cent,” he added.
The Financial Services and Credit Panel (FSCP) in November suspended the registration of an adviser for three months after ASIC referred the adviser’s conduct to the FSCP.
“A significant factor in the FSCP’s decision was a lack of sufficient evidence on the clients’ files demonstrating why the previous recommendations in the statement of advice remained appropriate,” he said.
Kirkland added that there was undue reliance on research reports creating risks for investors, especially where there were conflicts of interest that may adversely affect the independence and therefore reliability of those reports.
“Research that is not reliable or credible can damage confidence in the research sector itself and the financial system more broadly,” Kirkland said.
ASIC expected the end-users of research reports such as trustees, advisers and their licensees to apply their own rigorous processes in considering research and ratings within their decision making.
“They are subject to their own obligations under the Corporations Act and the licences they hold and can’t outsource those obligations to research agencies,” Kirkland said.
