Advice regulatory burden to impact capital concentration

The regulatory burden around giving financial advice will have an inevitably impact on capital concentration and common ownership rather than investment by Australian superannuation funds, according to an association.

A submission into the inquiry of common ownership and capital concentration by the Stockbrokers and Financial Advisers Association (SAFAA) said investment by super funds was not the problem in relation to the capacity of ordinary Australians to invest in the listed equity market.

The problem, it said, was the regulatory framework governing access to investment advice and capital raising which needed to be reformed.

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“…Ensuring access to affordable investment advice through reforming the regulatory framework applicable to financial advisers and access to capital raisings will ensure that retail investors continue to have access to participation in capital markets and investment opportunities,” SAFAA said.

“…Any consideration of common ownership and capital concentration in Australia must take into account the regulatory framework surrounding the provision of personal advice to retail clients and retail investor access to capital raisings.

“Not to take into account the impact of current public policy settings on these two matters will inevitably lead to diminished access by retail clients to affordable investment advice and access to investment opportunities, which will be to the detriment of retail investors. This will inevitably impact on capital concentration and common ownership.”

SAFAA said the Financial Adviser Standards and Ethics Authority (FASEA) regime led to a “one-size-fits-all” approach to financial advice which ultimately disenfranchised retail investors. It noted that due to the FASEA regime, “top graduate talent” was being deterred from entering the stockbroking and investment advice profession.

“This shrinking pool of available advisers impacts on the availability and affordability of advice in investment in equity markets,” the submission said.

“This will result in detriment to retail investors, who will increasingly be left with the choice of either DIY trading online with no advice or advice from a financial planner who has minimal direct expertise in listed investments and markets.”

SAFAA said new investors would have only experienced the current bull market but when a market correction occurred they would need access to experienced investment advice to ensure retail investors made good decisions.

It also said there was a lack of engagement by investment banks with non-institutional shareholders, leaving retail, high net worth, and self-managed super fund (SMSF) members disadvantaged.

“Not only are their shareholdings in Australian Securities Exchange (ASX) listed entities diluted, but they miss the opportunity to buy shares at prices that are often a hefty discount to the market price. Those gains go to a few institutional investors, frequently domiciled overseas,” it said.

“This is a result of those facilitating capital raisings typically not offering retail and SMSF investors a proportionate opportunity to participate in discounted capital raisings, instead relying on domestic and international institutional clients.

“While we recognise that Australia has long been an importer of capital, the exclusion of retail investors, including those in SMSFs, discriminates against them, despite their support of the company over long periods of time. At the same time the exclusion of retail investors from discounted capital raisings frequently advantages investors with little history with the company.

“In almost all cases of capital raisings during the COVID-19 pandemic, retail and SMSF investors were not offered a proportionate opportunity to participate in discounted capital raisings.”




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