Research houses close ranks on general advice

Mike Taylor

Managing Editor/Publisher, Financial Newswire

1 November 2022

Two of Australia’s major research and ratings groups – Lonsec and Zenith – have taken the unusual step of making a joint submission to the Quality of Advice Review to warn against changes to ‘general advice’ becoming a conduit for ‘poorer quality providers’ entering the research market.

The two research and ratings groups which encompass superannuation specialist ratings houses SuperRatings and Chant West have argued that deregulating general advice may open the door to new research entrants.

“…our view of this proposal to deregulate general advice is that it would also have the (perhaps) unintended consequence of deregulating Investment Research Business activities, allowing new entrants to enter,” the joint submission said.

“This could ultimately be a positive on competition, however we believe the industry today is highly competitive with over 40 providers. On the flip side, deregulation could result in the provision of poor-quality research or research to market that is not reliable, credible or current.”

“This would in turn impact consumer product choices undermine confidence in the research sector itself and have undesired knock-on effects in the financial services industry more broadly. Whilst a level of consumer protections would be in place, we don’t believe these are sufficient to govern such a critical part of the financial services industry, as all licensing and regulatory obligations would no longer apply.”

“Without governance on the accuracy, currency and disclosures around Research Products, the quality would suffer as would consumer confidence with the potential to cause harm to consumer investments,” the joint submission said.

“Also, we understand there are concerns that at times general advice is used as an advice pathway for Advisers, when in fact a personal advice pathway would have been more appropriate. To ensure the correct advice pathway is taken, we propose that instead of General Advice being completely deregulated, the definition and operation of general advice should instead be narrowed and be more clearly defined.”

“We suggest that provision of general advice is limited only to financial service providers, such as Investment Research businesses or other similar key service providers within the industry. True general advice would remain regulated to maintain quality standards and ensure that the end consumer is not impacted by diminished quality, unregulated research.”

“We acknowledge that de-regulation of general advice may open pathways for innovation. If general advice is to be de-regulated, we submit that some way to regulate conduct around the provision of opinions and recommendations about financial products and classes of financial product should be found, beyond provisions prohibiting certain conduct. In particular, we consider that there is value in ensuring that providers are held accountable for their content and conduct themselves in a manner that is conducive to the provision of good quality opinions and recommendations.”

“In other words, as a collective we advocate for a more positive duty to provide good quality advice services, rather than solely negative duties to avoid misleading or deceiving consumers.”

“Additionally, we propose transparency of remuneration as a key principle of a healthy financial services industry – if nothing else, as a commitment to restoring trust in the financial system generally. We are concerned that new entrants to the industry following de-regulation of general advice would have no reason to disclose how and by whom they are paid. We therefore submit that participants who generate revenue as a result of their financial services content should be compelled to explain how they are paid in clear, simple and prominent disclosure.”