In a submission to a Senate inquiry into the performance of ASIC, former senior ASIC officer and current AFS licensee Bruce Keenan said basic benchmarks would allow for better supervision of riskier investments and provide more accurate information to investors.
ASIC provides guidance for research houses in Regulatory Guide 79: Research report providers: Improving the quality of investment research, but Mr Keenan criticised the lack of consistency within the industry.
Because each research house can decide for itself how it will rate products, there is “no way for investors or consumers to compare apples with apples between research house providers”, he said.
The submission recommended that all research houses be advised to “adopt, as a minimum standard, more common or identifiable methodologies for assessing or rating products and investor profiles/categories”.
Mr Keenan suggested the houses be required to adopt the most common and widely understood ‘five category model’ for investor profiles, and unify confusing but overlapping terms like ‘high growth’ and ‘assertive’.
But he was quick to clarify that this ought not preclude research houses from still being able to use their existing methodologies as well for their own entrepreneurial advantage.
The submission highlighted community concern over company or ‘product failures’ and that much of the criticism had “been wrongly directed towards the financial planning industry”.
It identified that ASIC had also been subject to criticism but that they would “never have the resources to supervise this vast sector alone”.
“ASIC does not have the resources to properly ‘supervise’ the 15,000 investment products, but rather, should better utilise industry ‘gate keepers’ already available,” Mr Keenan said.
If these suggestions were adopted, Mr Keenan is of the view that ASIC will receive fewer complaints relating to financial loss, better inform investors and be able to target the ‘riskier’ zones.
He considered the most important benefit of the recommended changes to be that it was likely to move the volume and spread of investment towards less risky investment zones.
