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Planners under scrutiny in debenture crackdown

Madeleine Collins
— 1 minute read
ASIC looking to tighten restrictions on financial planners who recommend high-risk debenture products.
The corporate watchdog is yet to decide if it will tighten restrictions on financial planners who recommend high-risk debenture products.

However, in a consultation paper released last week, ASIC noted that few retail adviser groups conducted detailed research on them.

At least 93 companies that issue unlisted, unrated debentures will be banned from using the terms safe or secure under sweeping plans to clean up the $8 billion sector.

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The regulator has compiled a list of providers it believes sell the most risky investment products following the high-profile collapses of Westpoint, Fincorp, Australian Capital Reserve and Bridgecorp.

It said risks are most significant where funds are on-lent to property developers.

ASIC has started to investigate the role of planners to understand why the products are so appealing to ordinary retail investors

"From our discussions with experts and our own experience, some investors in these debenture products have obtained advice from a licensed financial adviser," ASIC said.

It is seeking public feedback on potential changes to advisory firm business models and the regulatory framework to assist consumers to decide whether or not to invest.

It has suggested other measures such as community advice centres, publicly-funded advice services, or do-it-yourself advice kits.

From 1 December 2007, new product issuers will be banned from saying that the investment is suitable for a particular class of investor, such as those in a self-managed super fund.

Existing issuers have until 1 March 2008 to comply.

Their advertisements will also need to state prominently if the product has a credit rating or not and contain a warning about the credit risk.

"The fundamental objective is to provide retail investors, and their advisers, with more investor information to make their decisions before they invest and then on an ongoing basis," ASIC chairman Tony D'Aloisio said.

Association of Independently-Owned Financial Planners executive director Peter Johnston said planners needed to stop getting the blame for the failures of the companies that promoted and ran such schemes.

"We are very tired of the continuous stream of property developer and promoter failures resulting in the financial planning industry getting the blame for their incompetence," Johnston said.

 

Planners under scrutiny in debenture crackdown
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