THE Australian Securities Dealers Association has criticised new Commonwealth regulations that prevent 450 financial service businesses from paying standard brokerage fees to their advisers.
Under the proposed recommendations, Australian Securities & Investments Commission-licensed businesses will still be able to pass brokerage fees onto their financial advisers, but boutique firms will be prohibited from doing so.
These regulations are intended to complement the Future of Financial Advice reforms, which aim to ban remuneration structures based on commissions and volume-based payments.
Consequently, non-participant firms will have to come up with new remuneration systems to pay their advisers.
The licensed ASIC market participants have direct access to trading, executing and clearing transactions on domestic financial markets including the ASX, National Stock Exchange of Australia, and ASX Futures exchange.
“Under the legislation, clients can still be charged brokerage fees but the brokerage can’t be passed onto the advisers within boutique firms,” ASDA executive chair Jamie Coote said.
“For advisers, that can take up to 90 per cent off their income, which will make it much harder for boutique firms to attract and retain talent.
“This could, potentially, force a large number of these financial services firms to close or reduce staff numbers.”
Local boutique firms affected by the recommendation include Alto Capital, Blackswan Equities, CPS Securities, Stellar Securities, and DJ Carmichael.
ASDA has contacted the office of Financial Services Minister Bill Shorten seeking clarification on this decision but has yet to receive a response.
Mr Coote said that, by only allowing market participants to charge brokerage, the draft discriminated against the investor’s choice of service provider.
“Boutique firms have established solid relationships with clients and invest with integrity on their behalf,” he said.
“It now appears you have to be a member of the ‘old school set’ to be allowed to trade in equities.
“We argue this is discriminatory, elitist and unfair.”
There are about 40 licensed market participant firms in Australia, 19 of which operate in WA. These firms include Patersons Securities, Argonaut Securities, and Sentinel Stockbroking.
Mr Coote said some of the ASX participants weren’t happy with the changes.
“I have heard that they have sent some people to Canberra to talk with the treasurer,” he said.
ASDA held a meeting with its members last week where the majority of its members were confused by the decision to force them out of brokerage fee remuneration and feared their individual positions as investors would be severely hampered.
Mr Coote said both formal and informal written submissions had been sent to the Treasury, including submissions from ASDA and the big four banks.
The two-week consultation period with the Treasury ended Thursday last week.
If the proposal goes unchanged, brokerage fees will be restricted to licensed market participants when the Future of Financial Advice reforms take effect in July 2013.