The comments from the FPA come as the government announced yesterday that Treasury will undertake a four-week targeted public consultation process on the merits of the current stamping fee exemption in relation to listed investment entities.
Stamping fees are an upfront one-off commission paid to financial services licensees for their role in capital raisings associated with the initial public offerings of shares.
Unconflicted advice vital for profession, says FPA CEO
FPA chief executive Dante De Gori said he welcomed the opportunity to consult with Treasury on the merits of the current stamping fee exemption in relation to listed investment entities, adding that he continues to support the removal of non-client-directed fees in all financial advice services.
In particular, he pointed to the FPA’s Code of Professional Practice and Remuneration Policy it launched in 2009, outlining the responsibilities of members to act in the best interest of clients at all times and introduced the principle of client-directed payments which was replicated by government in the introduction of the Future of Advice (FOFA) reforms.
“At this point in Australia, all other forms of product-directed payments that a financial adviser receives from clients, have been banned, leaving most financial planners only receiving fee-for-service payments,” Mr De Gori said.
“Between 2009 and 2012, all of our members transitioned away from these payments to ensure that clients are receiving unconflicted advice.
“As a result, FPA members currently receive on average around 8 per cent of their total revenue from investment commissions, with the majority of this being phased out by 1 January 2021 when grandfathered commissions will cease.
“The FPA supports the government’s efforts to improve the quality of financial advice that all Australians receive. Ensuring that people receive unconflicted advice, that is in their best interests, is vital to the provision of financial advice that Australians can trust and rely on.”
Conflicted advice conclusion unfair, Clime says
However, Clime Investment Management chief executive Rod Bristow said the debate seems to have quickly devolved to “if the conflict exists, it will be exploited”. He noted there have been various conclusions being drawn that point to the conflict being the sole reason capital has been raised.
“I do not believe this conclusion is accurate, or fair on financial advisers,” Mr Bristow said.
Even though the current debate around stamping fee exemptions makes them a biased commentator having managed an LIC since 2004, Mr Bristow said Clime is better placed than most to comment on the issue.
Mr Bristow said that, for perspective, the total capitalisation of listed investment structures (the majority of which were in place prior to 2015) is estimated to be around $41 billion.
He also conceded that there have been a number of recent listings, however he added that this needs to be placed in context with the Australian Bureau of Statistics reporting on the managed funds industry, which as at 30 September 2019, had $3,874 billion in funds under management.
Mr Bristow also pointed to the Hayne royal commission final report which stated:
“It should be considered recognising that there is every chance that adding a new layer of law and regulation would serve only to distract attention from the very simple ideas that must inform the conduct of financial services entities:
- Obey the law
- Do not mislead or deceive
- Be fair
- Provide services that are fit for purpose
- Deliver services with reasonable care and skill
- When acting for another, act in the best interests of that other.
These ideas are very simple. Their simplicity points firmly towards a need to simplify the existing law rather than add some new layer of regulation.”
“This is also a point of regulation, specifically related to advisers’ obligation to act in their clients’ best interests,” Mr Bristow said.
“Consistency in application of regulation is of [course preferable], but additional regulation is not the answer.”
“Ensuring that people receive unconflicted advice”
There is not such thing. That the FPA’s CEO doesn’t understand that is a real concern. As well as suggesting that he doesn’t understand his industry, it also indicates that genuine conflicts of interest won’t be recognised and so will not be disclosed or managed.
Well said Anon with the “Unconflicted advice vital for profession, says FPA CEO”…except conflicting bribery payments from manufacturers to the FPA”
To all those FPA members, you’re such an embarrassment to this industry. We’re laughing at YOU now.
Yet totally acceptable for the FPA to get payments from firms dragged before the Royal Commission and hide them on their balance sheets for decades and disclose them as “payments from members”.
Listing fees we’ll voice a comment, yet CBA advice scandals and FASEA we’ll saying nothing till it’s too late. I’m against these but I’m more stunned by the FPA’s arrogance here. Anything to do with Banks, AMP, defending AMP planners or planners in general and their silent. Now we hear from them. Is this because firms that pay listing commissions don’t make membership of the FPA compulsory? Any easy target for the FPA. Seems to me that the FPA picks it’s battles not on what’s good for Australians or the FPA members but what makes them look good.
In the eighties advisers would simply rebate commissions to eliminate any conflicts. Has everyone simply forgotten this?
Yeah right. Advisers needed some spending money after all to pay for that paid trip to Fiji by AXA, or AMP. That never happened and if it did it was one in a ten thousand advisers. Turns out you were an industry thought leader and you didn’t know it.
Will the FPA only accept “member directed fees”?
How you can pay a 1% stamping fee on an application to buy CommBank hybrids or WBC hybrids or whatever is beyond me.
I mean really what the fee is, is a payment for distribution of a product. Hybrids kind of sell themselves with the yield right, but there are a whole other range of securities out there that pay … “higher” fees to brokers.
Hear me now – “Almost every private placement you have ever been pitched or will ever be pitched is a scam.”
Illiquid REITS, Tree Planations, Ostrich Eggs, tiny tech companies, oil and gas exploration, whatever, the list goes on.
Basically, Why do companies choose to raise money this way? It’s the most expensive way to do it! They would have knocked on the doors of instos, angels, commercial banks, all the banks… and then last on the list, is the retail distribution arms.
If the offering company has to give up to a tenth of the proceeds to a broker to get the money raised, look out.
They call em murder holes for a reason.
“Unconflicted advice vital for profession, says FPA CEO”…except conflicting bribery payments from manufacturers to the FPA