The Financial Planning Association of Australia has sought for the removal of the current stamping fee exemption in relation to listed investment entities due to its inherent conflicts of interest for advisers.
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:
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.”
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