The use of lead-generation services by financial advisers is a marketing function that is separate from products and any review of them should consider if conflicted and non-compliant governance structures have led to poor advice, the Institute of Financial Professionals Australia (IFPA) has stated.
IFPA president Scott Heathwood said while the professional body supports an Australian Securities and Investments Commission (ASIC) review of lead generators and licensees that use them, any reforms must target structural conflicts of interest.
Heathwood noted digital lead generation only introduced prospective clients into the advice process, but did not design financial products, operate responsible entities, control trustee decisions or manage investor funds.
“The methodology is not the problem. Non-compliance and conflicted governance structures are the problem,” he said.
“We need to regulate the causes of failure, not the mechanics of client introduction.”
He added digital leads were opt-in and reflected that many consumers were seeking scaled advice via different channels that did not require an initial two-hour preliminary meeting with an adviser before they could discuss the consumer’s needs.
In a compliant lead-referral model, marketing specialists would generate opt-in inquiries and licensed representatives would conduct engagement and qualification with authorised advisers delivering personal advice under their best interest duties, and licensees would supervise these latter stages, he pointed out.
IFPA stated analysis of financial collapses has shown a strong correlation between investor losses and structural conflicts of interest, particularly within related-party arrangements, trustee structures and responsible entities where the focus on marketing channels may overlook structural problems and reforms that could avoid those in the future.
“Conflicts embedded within trustees, responsible entities and vertically aligned product structures create systemic incentives that can undermine investor protection,” Heathwood said.
“If reform is required, it should strengthen fiduciary independence and governance integrity.”
The institute also expressed concern that ASIC had decided to name a number of lead-generation and financial advice entities before it had completed its review.
“The rule of law requires due process and proportionality. Reputations can be damaged long before findings are made and that is not a sound basis for maintaining confidence in Australia’s regulatory framework,” IFPA stated.
“IFPA supports ASIC’s responsibility to investigate misconduct. Where breaches occur, they must be addressed decisively. However, durable reform depends on accurate diagnosis and evidence-led solutions, not a knee-jerk hunt for easy targets.”
