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Just for Josh: Survey on attitudes to LIC fees

The Federal Treasurer, Josh Frydenberg, has announced a brief public consultation into whether financial advisers should receive 'stamping fees' for distributing listed vehicles to their clients. The results of this Firstlinks survey will be provided to Treasury as input to its decision. Please take a moment to share your views and we will publish the results next week.

[Note: This survey is now closed]

A changing landscape for listed entities

After $4 billion of issuance in Listed Investment Trusts (LITs) and Listed Investment Companies (LICs) in each of the last two years, the regulatory landscape is about to change. Although two fixed income LITs are currently raising money under the old rules allowing stamping fees to be paid to financial advisers, it is likely that the Federal Treasurer will ban the practice in future and bring listed funds and trusts in line with unlisted vehicles under FoFA.

For those who require more background, we have published several articles on the subject, including:

Advisers and investors in the dark on LITs and LICs, a detailed background paper explaining the current regulations and why they are unsustainable.

Authorities reveal disquiet over LIC fees, following the FOI revelation that ASIC argued the payments should be banned.

1 January is moment of truth for the wealth industry, a financial adviser argues good advice must be free of conflicts.

Three overlooked points on the LIC/LIT fee battle, offers the same conclusions we expect Treasury to reach.

Here is Josh Frydenberg's announcement:

"The Morrison Government is today announcing 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.

Public consultation will allow the Government to make an informed decision on whether to retain, remove or modify the stamping fee exemption in order to ensure that the interests of investors are protected and capital markets remain efficient and globally competitive."

In addition, the CEO of the Financial Planning Authority (FPA), Dante De Gori, responded with support to ban payments: 

“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. The FPA supports the government’s efforts to improve the quality of financial advice that all Australians receive."

Let us know your opinion including comments and we will ensure the survey is presented to Treasury. The survey is only a few questions and no identities will be revealed.

Either complete the survey embedded below, or use this web link.

 



 

27 Comments
Phil
February 06, 2020

I personally think the Hybrids are the bigger problem. I've seen 500K lots of these sold to 'sophisticated' investors as a cash like product by the private banks etc.

Adviser
February 03, 2020

We rebate all stamping fees and any other commissions/rebates to clients accounts. You can even get 0.20% from some term deposit providers, just crazy. Keep it simple, clients should be the only ones paying for the advice, not the product providers to be put higher up on Advisor radars.

Client
January 30, 2020

Stamping fees ultimately lead to lower returns for clients and is often not obvious to them due to a lack of transparency.

Client
January 30, 2020

Get real and manage these issues, the banks have demonstrated that the financial operators cannot be trusted, why are we still going through this nonsense.

Client
January 30, 2020

How can there be any debate whether this is conflicted. A man can not have two masters.

Client
January 30, 2020

Fees should be based similarly to other professionals such as accountants and solicitors - nominally on a time basis and hourly rate.

Client
January 30, 2020

clients will never pay a fee for advice enough to make advice a viable business. If the stamping fee was a fixed amount for all securities there would be no conflict of interest.

Adviser
January 30, 2020

As long as they are disclosed I dont see any issue in receiving these type of fees. I just dont agree with different rules for Brokers.

Client
January 30, 2020

commissions of any sort are a reward for a service performed so by definition it's hard to see how the broker can avoid being conflicted selling a product to a client whilst getting a payment from a third party. There are enough problems with brokers getting paid in kind already without adding further fuel to the fire.

Client
January 30, 2020

It is quite clearly a conflict of interest and various reports on this have shown the link conclusively between commissions and how they have affected a planners advice to their clients.

Client
January 30, 2020

Advisers should charge a fixed fee for advice based on time spent, not a percentage of FUM.

Client
January 30, 2020

The problem seems overblown to me. It only applies to new issues and floats, so why is the media demonising all LIC's. Brokers have always got a fee for new floats, so would they no longer be allowed to suggest new floats to clients. How else are clients going to know the floats are available.

Adviser
January 30, 2020

Although I don't and wouldn't accept stamping fees if other advisers do and agree with their clients that is how they are to be remunerated and obviously still act in best interests of clients then I don't have an issue.

Client
January 30, 2020

I have some sympathy for commissioned products with full disclosure There is a danger that investors will revolt against necessarily expensive advice.

Client
January 30, 2020

Complicated issue. Probably should if the broker is providing advice to a client about how to construct an equities portfolio. In that sense the broker is acting as a financial advisor rather than as a provider of stock broking services and products to enable clients to access the Stock Market

Client
January 30, 2020

I think stock brokers are a bit different, we know they are selling product, and I suppose those of us who use them are dare I say it, a little more sophisticate? Just a little!!

Non adviser
January 30, 2020

LICs are not different to any other company..if BHP pays fees for capital raising why shouldn't AFIC or Argo. Merely because a company(LIC) invests in a group of businesses or a single business line (ordinary listed company) should not alter the rules for capital raising ie responsibility of Directors. The criticism is an artificial distinction driven at least in part from fund managers wanting to stop other fund managers getting funds listed on the ASX. The poor performance of some LICs/LITs is a different issue which is the same as the poor performance of other investment classes eg mining shares, when supply runs hard. Existing Corporations Law requirements can deal with any illegalities. A possible area of useful review is in relation to disclosure of and assessment of market values of unlisted and particularly illiquid securities held by LITs. LICs holding liquid equities and having regular reporting of accurate market asset values are not a market problem irrespective of whether they are internally or externally managed.

Client
January 30, 2020

We have first hand experience of this. Our FA said the commission they got was to a separate part of their business therefore 1. No conflict, and 2. They did not have to rebate it to us as per our agreement. The LIC tanked on opening and our FA told us to get out when it was 15% down. I have lost most of my faith in them as FA’s.

Client
January 30, 2020

As long as fees and commissions are explicit and known to clients, and are taken into account in the justification of the investment recommendation, then I do not see an issue.

Client
January 30, 2020

Many other industries adopt payment methods and incentives by companies that they are selling their product. Many of these their client relies on the representatives advice. So if brokers and financial advisers make it known to their clients I cannot see the problem after all most businesses are underwritten in some of its major suppliers which smooths out the bumps in their finances. If financial advisers rely solely on a fee when someone knocks on their door the service will cease to exist.

Client
January 30, 2020

Some advisers do no work and just recommend based on payment but others do a lot of research and evaluation work prior to recommending. Better education of investors and a capacity to recognise return on investment will make investors more discerning.

Non adviser
January 30, 2020

No problem with an advisor receiving a fee from the product provider provided that the advisor provides a written statement comparing the product to at least three other similar products and gives a reasonable rationale as to why the advisor is recommending this product over the other three products. In the same comparison the advisor must indicate the fee to which they would obtain from the recommended provided plus the fees if any that they would be entitled to had they recommended any of the other three products. My quick read of the legislation suggests that advisors who represent the product as employees are exempt from disclosing commissions. Where an advisor publicly advertises that they market a particular set of products prior to any interaction with clients and reports this annually (perhaps to ASIC), I don't see a need for them to disclose commissions. This is the situation that applies in real estate where the agent makes it publicly clear prior to interaction with possible clients (i.e. buyers) the product (real estate) that they are selling. There is no obligation for them to disclose to the buyer the commission that they will receive from the sale of the property. It should be noted that they are guidelines for setting of commissions and buyers and sellers can gain a sense of what the real estate agent will receive.

Client
January 30, 2020

Happy to pay fee for service. Will never use adviser I know is getting a commission! (by what ever name!!!)

Adviser
January 30, 2020

While the wording of the code of ethics is really poor, the worked examples make it clear that the fees can be received. Where they can not be received is where they cause a change in the adviser's behaviour e.g. when the adviser chases stamping fees because he needs to pay his kid's school fees. I don't understand how there are still any questions around this.

Adviser
January 30, 2020

Generally I only recommend traditional LICs (AFI,ARG, BKI, WLE etc) with low mgt fees. I am disinterest in "new" LICs/LITs. I do business in Rollover of Bank Hybrids for which stamping fees apply. Usually I have to spend considerable time discussing these situations with clients, and arranging documentation. If I were not "proactive", my clients may not take action.

Adviser
January 30, 2020

I have not see in ANY press article, the amount of time and work that Financial Planners put it in doing due diligence on an IPO, preparing allocations, recommending it to clients and arranging settlement. In addition to this, when bidding for "firm stock" the Adviser might end up having to take any shortfall than cant be filled. If there is ONE factual message that could be passed on to Treasury it is this. I support a cap in stamping fees of 0.50% which is fair and reasonable.

Gary M
January 30, 2020

Some advisers do accept commissions but refund them to their clients. Where does this sit in Josh's review?


 

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