Recessionberg drawn into LIC/LIT debacle

Good job, Chris Joye:

As a result of never-ending mis-selling crises created by these conflicts, advisers were banned from accepting selling fees to spruik fund managers’ wares by both sides of parliament in 2012 via the Future of Financial Advice (FOFA) laws.

Yet in 2014 the Coalition bizarrely created an exemption from these laws – against the express advice of the Australian Securities & Investments Commission (ASIC) – for any fund manager that listed their product on the ASX via a listed investment company (LIC) or listed investment trust (LIT).

These selling fees, which are normally between 1.5 per cent and 3 per cent of the money advisers extract from clients, are as big as those earned by real estate agents. In 2019 alone, fund managers shelled out more than $250 million in fees to advisers to get them to promote LICs/LITs.

The war over conflicted selling fees could determine the fate of the advice industry and the political career of budding Treasurer Joshua Frydenberg as the Labor Party zeroes in on what they claim is his neglect of ASIC’s staunch advice on the matter.

“Have the Coalition learnt nothing from the banking royal commission?” asks Stephen Jones, Labor’s financial services spokesman. “Treasurer Frydenberg must act to close the loophole the Coalition created in the financial protection laws, which leave billions of dollars in savings at risk from poor financial advice.

“The Treasurer must also explain why he has ignored advice from the corporate regulator to act on the high-risk investment schemes which are being promoted to retail investors because of the loophole.”

Jones was referring to remarkable revelations from The Australian Financial Review’s John Kehoe, who through a freedom of information search forced ASIC to disclose that it had advised the Coalition in 2013 and again in 2019 to shutter the loophole.

…the kickback camp remain quietly confident Frydenberg will continue to do nothing.

They are therefore moving ahead with plans to promote an “avalanche of LITs” in 2020 from fund managers keen to capitalise on the ability to pay selling fees. Historically these products have been dominated by hedge funds and illiquid leveraged and unlevered high-yield bond funds that are hard for retail investors to understand.

Let’s call it what it is: corruption. The game of mates feeding on the bodies of the unwary.

Maintain the rage, Mr Joye.

Latest posts by David Llewellyn-Smith (see all)

Comments

  1. Can we just have one whole article on the depth of corruption in Australia? Be a cracking read.

  2. TailorTrashMEMBER

    These things look a lot like all those wealth management products they sell to simpletons in China…….you give me your money and I’ll manage my wealth ….thanks a bunch …….