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Regulator takes tougher stance on financial advice

RESEARCH houses will have to keep their advice free from commercial influence and reveal more about how they come to their conclusions on investment products under new rules proposed by the corporate watchdog.

RESEARCH houses will have to keep their advice free from commercial influence and reveal more about how they come to their conclusions on investment products under new rules proposed by the corporate watchdog.

The Australian Securities and Investments Commission's proposed new rules are a response to the ticks of approval research houses gave to a string of investment debacles, including Westpoint, Fincorp, Bridgecorp and Basis Capital, which cost investors hundreds of millions of dollars.

Research houses are the latest set of "gatekeepers" to be tackled by new ASIC chairman Greg Medcraft, who yesterday said a review of websites that compare products such as home loans and insurance was likely to be next. "They are gatekeepers and very popular, and we have said we will hold gatekeepers to account," he said.

In a consultation paper issued yesterday, ASIC said the payments fund managers make to research houses to rate their investment products was "the most serious conflict of interest" identified during its research of the industry.

Mr Medcraft said that while the watchdog was opposed to the payment for ratings business model, it stopped short of banning the practice because it lacked the power to do so.

He said the new rules for research houses aimed to bring them into the same regulatory net that already catches equity analysts at stockbrokers and merchant banks.

"One of the other things we're asking them to do is publish their methodologies. It's actually about trying to lift the veil," he said.

"The other thing we're asking is that they actually be very clear on who pays for the research.

"We're talking about managing conflicts, disclosing conflicts. It's absolutely essential that investors understand and can make a judgment on the report they're reading."

He said ASIC had learnt from the global financial crisis, but would not be drawn on whether regulation before the crisis was up to the job.

Craig Semmens, the managing director of research house and stockbroker Lonsec, which accepts fees from fund managers to rate products, said that on a first reading of ASIC's paper his company was "in a good position to comply".

"We disclose everything that we do now," he said. "What we don't disclose is the [size of] fees that we receive."

He said that he did not know if the new rules meant Lonsec would have to disclose how much it received from fund managers for rating their products.

Anthony Serhan, the chief executive of Morningstar Australia, which does not charge providers to review products, said that ASIC's consultation paper was "a good document".

"I don't think it looks particularly onerous," he said.

The chief executive of the Australian Institute of Superannuation Trustees, Fiona Reynolds, said ASIC's move was "a welcome initiative".

"Investors must have confidence that the information they are basing decisions upon is not only accurate but also unbiased," she said.


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