A ban on stockbroking commissions proposed in the Government’s Future of Financial Advice (FOFA) reform package will be detrimental for the industry and have unintended consequences, according to the Stockbrokers Association of Australia.
The impact of such a ban has not been fully considered in the framing of FOFA reforms, according to the association’s official submission.
The stockbrokers argue the ban should not apply to direct equities because the commissions are paid directly to the broking firm by the client rather than by the product issuer on a per-transaction basis, meaning the payments are essentially a fee for service model already. Payments are also fully disclosed and product neutral, the submission noted.
The issue of churning by stockbrokers has also been grossly overstated, with clients protected from the practice by Australian Securities and Investments Commission (ASIC) market integrity rules, Australian Securities Exchange (ASX) operating rules as well as the Corporations Act, the submission stated.
The association said its proposals are in line with regulations in the UK and Europe where similar reforms don’t cover direct equities.
The submission advised that any proposed ban in stamping fees would cause difficulties for Australian companies raising capital, and therefore reduce opportunities for investors and damage Australia’s potential to grow as a financial centre.
Stockbroking firms providing services to the clients of licensed intermediaries should also not be caught by the FOFA ban because the advisory relationship remains between the client and intermediary and fees are charged on a fee for service basis and are transparent and product neutral, the submission stated.
The association also said it had not been properly consulted in the same way other segments of the industry had. The association complained that the release of draft legislation is now imminent and there had been no period allowed for policy discussion, with the only communication provided to stockbrokers coming from an FAQ on the FOFA website.
