The feedback was in response to Report 384 Regulating Complex Products, released by ASIC in January, and was published in a report released last Friday.
Some of the submissions received by ASIC, which came from individuals, financial advisory businesses, academics and a stock exchange, argued the distribution of complex products should only be allowed if financial advice is provided.
The report said these submissions were based on the premise that the “risks to investors are greater in non-advised channels where investors are more likely to make decisions without having access to or taking into account all the relevant information”.
One submission disputed this notion, however, stating that investing through an adviser is not necessarily intrinsically safer for investors.
It argued “both approaches can lead to good and bad outcomes” and that the “regulatory system should provide adequate means to protect investors from the risks associated with complex products regardless of whether or not the investor has received financial advice”.
Another submission argued the sale of some types of complex product should be restricted solely to sophisticated investors.
ASIC said while it does not plan to issue guidance on its expectations of product issuers when selecting distribution channels, it will take it into account as part of the regulator’s risk-based approach to surveillance.
A number of submissions also provided suggestions for mitigating the disclosure risks of complex products, including providing a one-page summary of the product, compulsory warnings and links to the ASIC MoneySmart website, a stand-alone risk awareness statement and worked examples of best and worst-case scenarios.
One of the submissions also suggested disclosure could be improved if product issuers and research houses provided advisers and investors with reports which considered the usefulness and suitability of products for clients and explained the operation of the products’ complex features, and highlighted the factors affecting risk, liquidity and reward.
ASIC said it will continue to take a risk-based approach when conducting surveillances targeting product disclosure.
Concerns were also expressed about complex products being “mis-sold through general advice models where advice is limited to information about the product and does not take into account the specific needs and circumstances of the client”.
Another submission stated that brokerage firms seeking to cull clients below a certain threshold, and the prioritisation of client acquisition and revenue over quality advice, were concerning trends emerging in the financial advice industry.
