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13-324MR ASIC finds advice on complex capital protected products needs to improve

Wednesday 4 December 2013

ASIC’s assessment of advice provided by financial services firms to investors about capital protected products found many advisers did not make adequate enquiries into their clients’ personal circumstances.

Report 377 Review of advice on retail structured products (REP 377) found that in approximately half of the files, there was insufficient evidence to show that advisers had met their obligations to investigate clients’ relevant circumstances, the subject matter of the advice and then to provide appropriate recommendations.

This report is part of ASIC’s ongoing review of the provision of complex capital protected products to retail investors. A report in May 2013 found significant concerns around the marketing of such products (refer: 13-093MR).

ASIC reviewed five pieces of advice from each of ten firms providing these products to retail investors. The majority of advice reviewed was provided in 2012 and had to comply with section 945A of the Corporations Act 2001. This was the part of the law that required an adviser to have a ‘reasonable basis’ for the advice. That section of the law has since been replaced by the Future of Financial Advice (FOFA) reforms, which include a requirement that advisers must act in the best interests of their clients.

ASIC Deputy Chairman Peter Kell said, ‘The findings were disappointing and with FOFA now raising the bar for advisers, our warning against inappropriate selling of complex products cannot be clearer.

‘Capital protected products are complex and can be difficult for investors to understand. Advice about them needs to be appropriate and accurate. Where it isn’t, we will take action.

‘Where our review identified concerns with the advice provided, we are analysing the cause of the problem and considering appropriate regulatory outcomes. In some cases, we are conducting further surveillance with a view to enforcement action where merited.

‘We will also ensure that where we have significant concerns with the advice provided to individual clients, those clients have their position appropriately reviewed.’

REP 377 found:

REP 377 also details concerns with disclosure, including misrepresentation of the features of products recommended, including the degree of safety or capital protection.


The advice review included a sample of five advice files from each of 10 Australian financial services licensees (50 advice files in total). The sample was not intended to be representative of the whole market for structured products advice. For example, it included some advice files and products where we perceived there was potential for inappropriate advice, though most files were not selected for this reason.

REP 377 is part of ASIC’s crackdown on the sale of complex products promoted as having capital protection or a capital guarantee, or as offering ‘contingent’ or ‘conditional’ forms of protection. In May 2013 a review of the sector found there was a need to ensure that marketing and advice directed at retail investors is more appropriate and accurate, especially where an investor’s capital was at risk (refer: 13-093MR). The review’s findings were summarised in Report 340 ‘Capital protected’ and ‘capital guaranteed’ retail structured products (REP 340).

Following the release of REP 340, Commonwealth Bank of Australia, Credit Suisse Investments Services (Australia) Limited, HSBC Bank, Instreet Investment Ltd and UBS AG (Australia branch) amended or withdrew certain promotional materials for complex structured products, to address ASIC’s concerns (refer: 13-176MR and 13-246MR).


REP 377
REP 340

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