The research and investment house has released a white paper recommending a number of changes to policy thinking in the financial planning and financial product manufacturing sectors, calling for a new paradigm of “cohesive co-regulation”.
The white paper – penned by Lonsec’s Richard Everingham – argues that government policy responses to the financial services industry since the GFC have been “siloed and unintegrated” and implemented in an “ad hoc, generally reactive” manner, singling out the FOFA legislation and Senate review into the performance of ASIC as cases in point.
The paper calls for a number of recommendations for the financial planning community, including greater collaboration between the FPA, AFA, FSC and ASIC, as well as greater commitment to behavioural finance concepts in financial planning practice.
However, Lonsec also suggests a number of changes for research houses including additional transparency and self-regulatory measures.
Specifically, the white paper recommends that research houses implement “enhanced analysis of financial product ‘safety’ (risks, client suitability, appropriate use and ‘portfolio interactions’)” and adopt “standardised financial product conviction ratings”.
Under the Lonsec model, research houses would also agree to a new requirement to lodge regular compliance reports with the corporate regulator every two years, as well as disclosing “ratings efficacy” within research reports.
Elaborating on the findings of the white paper at a roundtable event with institutional and non-aligned licensee heads in Sydney on Monday, Mr Everingham said research houses have no choice but to adapt to the post-FOFA environment, as their clients have.
“We have built a business around providing services to financial planners – and with their world turned upside down, we can hardly think that our world is not going to be turned upside down as a key supplier so we better start thinking about these issues quite deeply,” Mr Everingham said.
“With all the post mortem since the GFC, there has been some constructive and not-so-constructive discussion and finger-pointing about the role of research houses,” he added.
“We believe there is now an opportunity to close the so-called expectations gap.”
