How Treasury favoured ETFs over LICs and LITs

The Federal Treasury decided to treat stockbrokers just like financial advisers when it recommended the removal of the stamping fee exemption applying to Licensed Investment Companies (LICs) and Licensed Investment Trusts (LIT).

What is more, in doing so, it supported the views of exchange traded fund (ETF) businesses and financial planning lobby groups over the voices of LIC and LIT issuers, stockbrokers, corporate finance groups, REITs and infrastructure funds.

Treasury’s position has been revealed as a result of a belated regulatory impact statement made public as a result of the post-implementation review of the removal of the stamping fee exemption – something which the Stockbrokers and Investment Advisers Association is arguing has effectively stalled the previously “thriving” LIC and LIT market.

Treasury’s 2020 decision on the stamping fees exemption was acknowledged as “likely to have major impacts on affected businesses and individuals” requiring the preparation of a Regulatory Impact Statement (RIS) but the Government imposed the changes without awaiting that statement.

However, Treasury subsequently prepared a RIS for “transparency purposes” which revealed that the department was focused on the fact that “the Government has committed to implementing recommendations 2.3 and 2.6 of the Financial Services Royal Commission (FSRC)” requiring the removal of the remaining exemptions from the ban on conflicted remuneration”.

Notwithstanding the arguments of stockbrokers and others, Treasury said that its public consultation had “revealed that stamping fees can potentially create conflicts of interest for an Australian Financial Services licensee or their representative to mis-sell a particular investment to a consumer, with continued issuing activity for LICs and LITs in the face of an ongoing discount to NTA indicating mis-selling potential”.

Explaining why it was publishing the RIS despite the Government having already made up its mind, Treasury claimed it demonstrated that the Government’s decision had not acted without being appropriately informed.

The Treasury document stated: “This RIS has been prepared and published for transparency purposes following a four week public consultation on the options outlined in this RIS. It was prepared following the Government’s decision to remove the stamping fee exemption for LICs and LITs on 21 May 2020 and was not assessed by the Office of Best Practice Regulation prior to the announcement.

“However, this RIS demonstrates that a number of options were considered and tested with stakeholders prior to the Government’s decision to announce the removal of the stamping fee exemption for LICs and LITs. The public consultation process enabled a range of stakeholders to provide their views on the options being considered which allowed the Government to make an informed decision”.