The Australian Securities and Investments Commission’s (ASIC’s) call for advice providers to “quiz” researchers comes as Regulatory Guide 79: Research report providers: Improving the quality of investment research comes into force.
Organisations that use retail research firms should be thinking carefully about their business model, any potential conflicts of interest and how they produce ratings - and what they mean.
Just because a product is highly rated does not mean it will be suitable for a given product, said ASIC deputy chairman Peter Kell.
Licensees and advice providers should go through a checklist of items when they are considering using a particular research house, according to ASIC.
When it comes to the business model, conflicts of interest arising from remuneration practices or ownership structures should be taken into account – as well as the way those conflicts are managed.
The level of experience of the research analysts and the amount of resources allocated to the research task should also be considered, according to ASIC.
The way products are selected for rating and the meanings of the ratings should be understood, along with whether the products are based on an absolute basis or a ‘best of breed’ basis, according to ASIC.
The research methodology should also be considered, as well as the ‘spread’ of ratings applied.
Finally, when it comes to a researcher’s service offering, advice providers should know what kind of quality control measures are used by the business, said ASIC.
“We encourage all advice providers to do their due diligence on their third party research provider to ensure that quality inputs go into their advice businesses,” said Mr Kell.
