ASIC said its assessment of advice provided by financial services firms to investors about capital protected products, covered in its Report 377 Review of advice on retail structured products (REP 377) released on Wed 4.12.2013, found many advisers did not make adequate enquiries into their clients’ personal circumstances. Among other things, ASIC found that advisers had given unsuitable gearing recommendations or a lack of evidence to support gearing recommendations eg to clients who may not have been able to afford the loan interest payments, or tax-driven advice where relevant risks were not highlighted.

REP 377 found that in approximately half of the files, there was insufficient evidence to show that advisers had met their obligations to investigate clients’ relevant circumstances, the subject matter of the advice and then to provide appropriate recommendations.

ASIC reviewed 5 pieces of advice from each of 10 firms (50 advice files in total) providing these products to retail investors. The majority of advice reviewed was provided in 2012 and had to comply with s 945A of the Corporations Act 2001. This was the part of the law that required an adviser to have a “reasonable basis” for the advice. That section of the law has since been replaced by the FoFA reforms, which include a requirement that advisers must act in the best interests of their clients.

ASIC Deputy Chairman Peter Kell said the findings were disappointing and with FoFA now raising the bar for advisers, “our warning against inappropriate selling of complex products cannot be clearer”.

Source: ASIC release 13-324MR, 4 December 2013

[LTN 235, 4/12/13]


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