Direct ASIC levy towards independent investment research – AIOFP
Financial advisers rather than fund managers should be paying research and ratings houses, according to the Association of Independently Owned Financial Advisers (AIOFP).
However, it wants the cost of obtaining that research paid for from the levy used to fund the Australian Securities and Investments Commission (ASIC).
AIOFP executive director, Peter Johnston has written to parliamentarians claiming that allowing investment funds to pay for being rated represents an unsustainable conflict of interest.
In doing so, he said the AIOFP endorsed the recent action announced by the Australian Securities and Investments Commission (ASIC) against SQM Research over its rating of the Shield Master Fund.
Johnston lamented recent reports that major research and ratings house Morningstar has been contemplating adopt a pay for ratings approach.
He said this suggested the market is too congested and should be sounding alarm bells to the regulators “that unethical behaviour against consumers and the advice profession is inevitable as ‘deals’ are done to survive”.
“The best conflict free/consumer friendly model is Financial Advisers paying Research Houses to rate a product, this ensures the rating is in the best interests of the stakeholder who is paying, namely Financial Advisers on behalf of their clients. This Adviser subscription model is preferred by consumer group Super Consumers Australia,” Johnston’s letter to parliamentarians said.
“We do not however want to incur another additional mandatory cost onto the Advice Profession with funding research, we suggest the following –
“Considering the massively flawed Managed Investment Scheme [MIS] structure where ASIC have a tick the box approach to product ‘registration’ we suggest the Financial Adviser ASIC Levy should be used to fund a Research panel of current operators.
“This panel of Research Houses would assess all new Products before they are registered [for market release] giving Consumer/Advisers an independent rating before commitment.
“The current CAVEAT EMPTOR warning by ASIC is and has always been, grossly inadequate. We suggest the panel only assesses new market releases, not the existing universe of product,” Johnston said.
This structure guarantees that –
Financial Advisers are funding research, the way it should be.
The current conflicted Research rating environment will become obsolete.
Consumers will get an indication of a new PDS quality upon market release.
The Advice Profession gets some badly needed cost recovery.
Advisers will not need to pass Research costs onto Consumers.
“It will also eliminate the all care/no responsibility and no accountability culture of Research Houses of the past,” Johnston said.
Makes sense for in dependent research.
If done Govt and ASIC will simply increase ASIC Levy to make Advisers pay more $$$$.
Hardly a win for Advisers Peter Johnston.
Or consumers who will pay more.
The pay for research model is not perfect but I note ASIC have not actually raised this as an issue with SQM Research. This is not part of their claim. Fundamentally, we need to ask ourselves who should pay for research? Yes, in an ideal world, the manager shouldn’t pay. But someone has to pay if you want good intellegence. Johnston’s idea that, essentially tax payers should pay, is an altruistic ideal. But I very much doubt it’s going to actually fly. Advisers in the past have had the opportunity to pay for research, but in the end, that model hasn’t worked because advisers simply don’t have the budget. In the end, this is not the issue behind the Rating on Shield and First Guardian. The truth of the matter is fraud took place in both instances. Fraud that no research group would have ever picked up unless they were doing paper trail checks on receipts.