Wasted billions gush through Frydenberg’s LIT loophole

Via John Kehoe who is doing a great job on this:

A commission loophole for stockbrokers and financial advisers opened up by the Coalition government contributed to investors losing out on $1.6 billion in sharemarket returns last year, according to new analysis.

The revelation comes as a separate survey by Morningstar’s Firstlinks showed that only about 30 per cent of advisers agreed they could act in the best interests of clients while accepting commissions from fund managers for selling newly floated listed investment companies (LICs) and listed investment trusts (LITs).

About 65 per cent of advisers disagreed, admitting it was a conflict of interest.

Just shut it.

David Llewellyn-Smith
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Comments

  1. Great job yeh. Maybe you guys should stick to macro stuff instead of just plugging one side of a topic on which you clearly have NFI.

    Letters to the Editor

    LIC/LIT changes mostly favour investors

    In response to Christopher Joye saying I have changed my view on listed invested companies/trusts (LIC/LIT) commissions (‘‘Here comes the 2020 twilight zone’’, February 8-9), the words attributed to Keynes are apt: “When the facts change I change my mind, what do you do?”

    Historically, I have written about concerns over the high costs for investors accessing LIC/LITs and fees paid to brokers/advisers. And I was stating the bleeding obvious that if selling fees were removed, there would be less money raised in LICs at that time. Quite a lot has changed, and almost all in favour of investors:

    ●the 3-4 per cent total costs of LIC/LIT IPOs are now typically paid by the manager, not the investor, meaning investors buy in at NTA (or a slight discount if stamping fees are rebated) compared to paying premiums of 3-4 per cent as recently as a couple of years ago, when investors bore these costs.
    ●the stamping fee paid to advisers/brokers has been falling over recent years to a current average weighted level of a little over 1 per cent.
    ●more advisers are using LICs/LITs and many of these are fully rebating stamping fees.
    ●the average quality of managers launching LIC/LITs has improved considerably over that period.
    ●there are greater resources and focus applied by LIC/LIT managers/boards to support the vehicle post-listing (marketing, capital management etc) although more can be done here.

    My historical concerns have not totally dissipated and there are still a range of issues that LICs/LITs in general need to better manage and communicate (discounts/premiums, transparency on returns/NTAs etc) which is why I became involved with the Listed Investment Companies and Trusts Association.

    Therefore, I don’t have a strong view for, or against, stamping fees in their current form. (And this view is unrelated to any consulting role I have, including LICAT). I just want to see a sensible solution to the issue based on current facts. Let’s see how the public consultation process goes.

    Dominic McCormick
    Investment consultant

    • None of this is an argument that the conflicts shouldn’t be ended. It’s great if the brokers aren’t abusing it as much as they did but they still shouldn’t have the opportunity.

    • Dom, I can safely say because of people like you I don’t invest in people like you. In fact I have been moving my money out of the banking system into physical (not paper) gold, crypto (yes I bet you will laugh with anger at that one) and some other things because my distrust for you, the government and regulation is so high that a simple risk assessment shows you aren’t worth it.

  2. Perhaps it should go but ideally only if it goes on everything listed to prevent further distortions. David, did you even read my letter? People know I am a terrible lobbyist because I deal in facts and solidly backed opinions, something that has been severely lacking in this debate. Perhaps you should educate yourself on those instead of just rehashing flawed data/analysis and conflicted propaganda from parts of the AFR, groups like Stockspot selling ETF portfolios and, I’m disappointed to say, the regulator ASIC. In any case David, I do appreciate you running my comment/letter without moderation.