The Australian Securities and Investment Commission (ASIC) is back in the news again, with another damning article from the Sydney Morning Herald on the recent inquiry into our corporate regulator. I'm usually reluctant to tout sensationalist media articles as truth, but the Senate inquiry has been, to steal a quote, little short of a 'real-life horror show'.
The Commonwealth Bank of Australia (ASX:CBA) has been in the headlines recently over the actions of its financial planning division back in 2007, where a number of financial planners were found by ASIC to have engaged in shady conduct. My opinion on ASIC's timidity can be found in greater depth here, but the real question is what lessons there are to learn.
1) ASIC
Without a tough, well-resourced regulator to keep the system honest, misconduct becomes a lot easier. Numbers two and three below are not a given, but without vigilant corporate oversight they become a lot more likely.
2) Companies must exercise the best possible corporate governance
Virtually all publicly listed companies exist to earn profits for shareholders. Conducted with varying degrees of ruthlessness, this mandate can filter down in the form of staff performance bonuses; to the point where senior management at Commonwealth Bank claims ignorance of the sales shenanigans of its underlings.
Sadly, taking a policy or doing any form of business with a blue-chip, big name company does not automatically mean they are looking out for your interests.
Anyone wanting premature grey hairs should have a quick read through some of the scandals associated with big pharmaceutical companies like Merck and Co. Inc. (NYSE: MRK) and Johnson & Johnson (NYSE: JNJ) to see what I mean.
3) 'Financial Advisers'
Now, these could be best split into two categories I have christened 'advisers', and 'salespeople'.
An adviser is a trustworthy, independent, paid professional like any other, to whom you pay a fee and receive impartial advice based on your needs and goals. They should be upfront about their pay structure and any kickbacks from promoting various products.
The salesperson, however, exists solely to sell you products and earn a commission. My parents recently encountered such a 'financial adviser' who told them bluntly that the sharemarket 'is no good' and property was a better investment. This adviser incidentally provided his sessions for free and earned fees from his promotions of property funds and insurance policies. No prizes for guessing where his loyalties lay.
It's not all doom and gloom though, as The Motley Fool knows that investors who pay for advice expect performance – that's one of the reasons contributors like myself watch the market every day and invest our own money into our recommendations. If you liked this article or others from our website, why not sign up for Take Stock, our FREE investing newsletter? Our top analyst has just released his report on our Top Stock for 2014 – boasting record profits and a huge dividend, what's not to like?