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Experienced advisers integral to overdue rewrite of financial planning rules

Mike Taylor14 September 2021
Puzzle pieces with open space for rules and green piece for rewrite

Experienced advisers need to be an integral part of an independent review into financial advice aimed at undoing many of the imbalances created by the Financial Adviser Standards and Ethics Authority (FASEA) regime and other regulatory changes.

And a part of that review has to include widening the number of degrees which can be recognised under the FASEA regime in circumstances where the current, narrow settings are leading to many promising graduates voting with their feet.

The call has come from the Stockbrokers and Financial Advisers Association (SFAA) at the same time that it has pointed out the degree to which recent changes to the regulatory regime and the exit of the major banks have served to disadvantage and discriminate against high net worth (HNW) and Self-Managed Superannuation Funds (SMSF) investors in capital raisings.

The SFAA is arguing that there needs to be fundamental reform of the financial advice regulatory framework in circumstances where the Government’s current review of common ownership and capital concentration “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,” the SFAA said in a submission filed with a Senate Economics Committee inquiry.

It said that Australian retail investors were being adversely impacted by significant recent changes in Australia, including the fact that the investment banking industry had almost completely exited the retail, SMSF and NSW investor space and was now targeting their own domestic and international clients, often hedge funds, resulting in shareholder dilution.

“This demonstrates a lack of engagement with non- institutional shareholders. Where capital raisings — including emergency capital raisings undertaken in the Global Financial Crisis and in 2020 as a response to COVID-19 —are undertaken without meaningful small and HNW shareholder inclusion, Australians lose the capacity and opportunity to support Australian businesses and participate in their recovery and future prosperity,” it said.

“Retail, HNW and SMSF investors are disadvantaged twice. Not only are their shareholdings in 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.”

“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. Most emergency fund raisings that were undertaken were via heavily discounted placements (utilising the temporary 25% placement capacity without shareholder approval) and, only in some cases, with attached meaningful Share Purchase Plans or entitlement offers that lessened the dilutionary impact on retail and SMSF shareholders. This was particularly evident in the larger companies with widely distributed shareholder registers.”

Mike Taylor

Mike Taylor

Managing Editor/Publisher, Financial Newswire

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