The Australian Securities and Investments Commission (ASIC) has released a consultation paper proposing tighter regulation of industry research houses.
The paper, titled ‘Strengthening the regulation of research report providers (including research houses)’, sets out a range of recommendations designed to manage conflict of interest and improve confidence in the independence and quality of research reports.
The recommendations set out to address the following key issues, identified by ASIC during discussions with a select group of research houses, industry associations and their members:
- The incidence (or the perception of) conflict of interests potentially arising through research houses’ revenue model, ancillary businesses and analyst arrangements
- The adequacy of skills and experience of research analysts in producing quality research, and
- The lack of transparency and comparability for research methodology
ASIC said it also identified an apparent ‘expectations gap’ between financial advisory firms and research houses about the nature and role of research in its review. In particular, advisers expressed a view that research houses should undertake more in-depth research, whereas some research houses saw their role as providing product coverage for a range of products in each market segment and identifying the ‘best of breed’ products.
Research can influence which products individual advisers recommend to their clients
ASIC Chairman, Greg Medcraft, said research was an important consideration for ASIC in light of its priority to promote confident and informed investors.
“Research can influence which products individual advisers recommend to their clients”, Mr Medcraft said.
“As such, the quality of research and the conduct of research houses have a material impact on the integrity of the financial planning industry, and the quality of the advice they produce.”
Submissions in response to the consultation paper are due on 3 February 2012.
