Lonsec has welcomed an Australian Securities and Investments Commission (ASIC) move to beef up the quality of investment research through updating the regulator's guide for providers.
The revised Regulatory Guide 79, 'Research report providers: Improving the quality of investment research' (RG 79), is designed to support broader efforts to 'raise the bar' on professionalism.
The changes also help the industry to manage conflicts of interest and improve confidence in the independence and quality of research, the research house said.
Lonsec also welcomed ASIC's acknowledgement that it will not require avoidance of conflicts of interest associated with direct payments from product issuers to research houses.
"It is pleasing that ASIC has acknowledged that indirect conflicts can be as potentially corrosive as direct conflicts to the integrity of the research and that it will not require the latter to be banned," Lonsec research chief executive Amanda Gillespie said.
She noted that the updated guidance highlights the fact that conflicts arising from cross-subsidisation activities and indirect payments from product issuers to research houses share the potential to negatively affect the independence and integrity of the overall research process.
"In actual practice, the conflicts that are associated with direct payments are more transparently managed, and audited for compliance, than indirect payments," Gillespie said.
"Indirect payments often involve convoluted cross-business subsidies, and indirect product issuer-derived revenue streams. In comparison, the most obvious conflict of direct payments from product issuers is less distorting and more manageable than the conflict inherent in indirect payments," she said.
Lonsec added it is also pleased with ASIC's decision that indirect payments be subject to the same disclosure requirements as direct payments from product issuers.
"Lonsec supports all regulatory efforts to improve the research report provider segment, in particular those efforts which improve the quality of research, the management of its inherent conflicts and the professionalism of research providers generally," Gillespie said.
"It is important that all participants in the advice chain play their part in ensuring investors make well informed investment decisions. Advisers have been subject to Future of Financial Advice (FOFA) reforms and it is entirely appropriate that research houses are now accountable to the outcomes of this review.
"A robust research industry with strong participants and sufficient choice is an important element for financial advisers and the industry as a whole," Gillespie said.
