FOFA is the acronym for the government’s Future of Financial Advice reforms but it might as well stand for “F..k off (non-ASX participant) Financial Advisers.”
Let me explain why the FOFA legislation passed into law last week actively discriminates against ASIC licensed non-ASX participants like my company, ANDIKA Pty Ltd (AFSL# 297069). The relevant section is below:
Brokerage fees given to representatives
(6) The monetary benefit is not conflicted remuneration if:
(a) the benefit consists of a percentage, of no more than 100%, of a brokerage fee that is given to a provider who is a participant in a licensed market; and
(b) the provider gives the benefit to a representative of the provider; and
(c) the provider has anti-churning arrangements in place.
The evil part of 7.7A.4.12 (6) (a) is the fact that this legislation WAS amended to specifically discriminate against ASIC licensed non-ASX participants. From the 1st July 2013, ASX participant firms WILL be allowed to continue to charge their Retail clients brokerage. The same ASIC AFS Licensed non-ASX participants, like ANDIKA (and approximately 450 other small AFS licensed firms), WON’T be able to charge their Retail clients brokerage. The law as it stands actively discriminates against the non-ASX participants. This provision was inserted late in the proceedings, and the amendments have been made and passed into law without consultation with the non-ASX participant AFS Licence holders. In my opinion, this will ensure that non-ASX participants will be crushed, and reeks of either malice or outright idiocy.
I have heard anecdotally that the Stockbrokers Association of Australia (SAA), (led by Managing Director and CEO, Mr. David Horsfield), lobbied the Minister and Treasury hard for this amendment (refer to the copy of email below from the SAA that was sent to all member CEO's, Retail Broking Committee, and Retail Compliance Sub-Committee).
I was once a member of the SAA. I was actually contracted by the SAA for several years to conduct their Options and Margin Lending educational workshops in Brisbane.
In 2010 the SAA opened applications for new board members, and I thought that I’d throw my hat in the ring, so I nominated. That was as far as I got. I was informed by Mr. Horsfield in person that, even though ANDIKA was a fully paid up member, I would not be allowed to nominate, as my company was not an ASX participant.
Naturally, I was disgusted, as I had been a member of the SAA’s since its inception (when they were known as the Securities and Derivatives Association or SDIA). I had been under the impression that the SAA was there to actively represent all of its members, not just the ASX participant members. I immediately resigned my membership and made my opinion known to Mr. Horsfield.
The Australasian Securities Dealer Association (ASDA) notes in their 19th June media release that “approximately 450 firms provide advice and trade in direct equities and options on behalf of around 2.2 million Australian clients that will be directly affected by this legislation.”
This one amendment made in favour of the “top end of town” will have severe consequences, not only for ASIC licensed firms like ANDIKA, but also for millions of Australian “mum and dad” retail investors.
It is the non-participant firms that deal with the small retail client, who from time to time might like to buy or sell a few shares. We also deal with the retail client who is sick of having (often unsolicited) corporate products forced upon them by the large multi-national broking houses. We deal with the retail clients who want real independent advice, not advice that’s in the best interests of the Corporate/Institutional broking arms of the Martin Place wizards. We provide competition to the sector that helps to keep brokerage fees low and equitable, and provides access to professional licensed stockbroking services to the smaller retail investors. Our existence provides much needed market liquidity to the ASX, which in turn helps to provide a sound and more transparent stock market. We employ thousands of fellow Australians, pay our ASIC Licensing fees, along with our share of corporate taxation.
If this legislation is not amended immediately, a vocal bunch of Collins Street and Martin Place elites will have succeeded in subverting the FOFA legislation to ensure that their ultimate goal of crushing their small business competitors is realised.
You might find yourself asking “why not just join them”, instead of trying to have your voice heard on this legislation, and become an ASX participant. It’s quite simple, in order to become an ASX participant you must have at least $10 million in surplus capital – I don’t know of any small or medium business enterprises that have that amount of surplus capital laying around.
Section 7.7A.4.12 (6) (a) must be amended to ensure that non-ASX participants are not discriminated against, and I urge the Hon Bill Shorten MP, Minister for Finance, to put an immediate end to this discriminative legislative action.
If the Hon Bill Shorten doesn’t make this amendment, he has effectively signed the death warrant for 450 perfectly viable Australian firms, and put the very people he wants to protect, the small retail “mum and dad” investors, at the mercy of the “big end of town”.
It is also important to remember that the large multinational stockbroking houses played a significant role in the GFC, not the small non-ASX participant Australian security businesses that are being discriminated against with this legislation.
You can read a copy of my letter here, which was sent on the 22nd June to the Department of Treasury – who have asked for submissions - and was also cc’d to the Hon Bill Shorten MP, Minister for Finance.
You can also read here, the media release from the ASDA, dated 19th June, 2012.
Below is a copy of email from Mr. Doug Clark, Policy Executive - Stockbrokers Association of Australia. I received this copy on 21st June.
To All CEO's, Retail Broking Committee, and Retail Compliance Sub-Committee
STOCKBROKERS CARVE-OUTS RELEASED
Late yesterday, Treasury released the draft FOFA regulations which give effect to the long-awaited stockbrokers carve-outs. The draft regulations, available hereinclude measures to:
- exempt ‘stamping fees’ from the ban on conflicted remuneration; and
- exempt employee remuneration for market participants based on a split of brokerage from the ban on conflicted remuneration.
Importantly, the splitting brokerage carve-out ONLY applies to market participants (subject to anti-churning measures which Treasury flagged to us, and which brokers already have). Limiting this to market participants is recognition of the status of market participant and the additional responsibilities, financial strength and higher standards that come with it.
The argument we put for the stamping fee carve-out was that prohibiting stamping fees would impede capital raisings, especially by small to mid cap companies. Accordingly, the carve-out does not extend to new issues by listed investment companies, since they don't raise capital in the normal sense.
Thanks are due to all the members who participated in our lobbying efforts to achieve this, especially those senior members of the Board and Retail Broking Committee who accompanied us to Canberra to meet with Treasury and the Minister.
Treasury is seeking comments on the draft regs by Tuesday 28 June 2012. While we have been closely involved in the framing of these carve-outs, we will be submitting Members' additional comments by then. The two FOFA Bills have passed the House of Representatives, and return to the Senate during the sittings 18-28 June, so FOFA appears on track to commence 1 July (with a one year transition) as previously announced.
Stockbrokers Association of Australia
T: +612 8080 3200
M:+61 (0)417 168804
F: +612 8080 3299
A: Level 6, 56 Pitt Street, Sydney NSW 2000
P: PO Box R1461, Royal Exchange NSW 1225