Failed and frozen funds all paid for research house ratings

The 155 failed and or frozen funds over the past six years had the one common factor – they all paid a research house to rate their product - according to research by the Association of Independently Owned Financial Planners (AIOFP).

The list covered all the failed and temporarily frozen registered managed investment schemes in Australia from January 2006 to November 2012. 

They ranged in magnitude and in asset class from the the small to Great Southern Agribusiness which was valued at about $4 billion.

The AIOFP executive director Peter Johnston has suggested financial planners were in a position to stop the conflicted practise of using research houses that accept payments from product manufacturers.

“The ASIC can only do so much to intervene in commercial terms. Advisers are the only faction that should be paying research houses and must start refusing to use research houses who accept payments from product manufacturers,” he told the Wealth Professional website.

The association was established in 1998 to differentiate the independently owned practices from the institutionally owned practices.

Institutions owned around 60% of the advice market in 1998 and the figure is now approaching 80%.

In 2011 the AIOFP suggested every adviser should be levied a yearly fee, say $1,000, managed by ASIC to fund a panel of research houses who only supply information to advisers and are not permitted to accept any payments from product manufacturers.

The panel would then also scrutinise all PDS's, which are not currently being checked for commercial viability by ASIC before market release.

"Unfortunately we have all been under the illusion that ASIC assess the PDS’s before market – they don’t, they continually say they don’t but no one is listening," said Peter Johnston.

"[Research houses] are unofficially empowered with the decision making role on which manufacturer’s products are good, bad or exceptional and whether they commercially survive.

"They have unfortunately become the unofficial ‘gate keepers’ of the industry with far too much power in our view," the website, wealthprofessionals.com.au reported.