Brokers' Fees Snarled In Red Tape
Sydney Morning Herald
Tuesday June 10, 2003
Investors using stockbrokers could face a sharp rise in transaction costs unless an impasse between brokers and the Federal Treasury can be resolved.
Last week, parliamentary secretary to the Treasury, Senator Ian Campbell, met the Securities & Derivatives Industry Association and industry participants to discuss a ``statement of advice" clause brought in under the Financial Services Reform Act.
The clause, aimed at improving transparency between brokers and their clients, requires advisers to record the details of every phone call and send a copy of that record to the client.
Brokers estimate they will have to spend an average two hours a day recording details of calls and some statements of advice could be five or more pages long.
At a recent conference in Sydney, brokers made impassioned pleas for a change to the legislation, ahead of its implementation in a new, compulsory securities licence next March.
One representative estimated that postage alone would cost $1 million a year. Another said software to handle such statements could cost $20 million.
In a submission made to Senator Campbell at the end of last month, Bell Potter Securities, one of the largest retail stockbrokers in the country, said that advisers could execute more than 50 transactions a day.
``We believe the SOA imposes significant and impractical burdens on stockbrokers that are without precedent . . . and which, from a private investor's perspective, will incur higher costs without any additional investor protection or other benefit.
``Stockbrokers will have no option but to pass these costs on to the private investor," the submission said.
``It is likely that our clients will be charged at least $100 per SOA or our minimum brokerage levels will be increased significantly, without clients receiving any better advice and without them being in any better position than they already are."
While acknowledging industry concerns and working with the SDIA to find a compromise, Mr Campbell said he believed legal representatives from the industry were misinterpreting the Act.
``We had a meeting [last] Wednesday and I told them that the advice they've been given by their own legal teams is not at all what's envisaged by the legislation," Senator Campbell said.
``If, for existing clients, you already have all the necessary documents on their details and you give investment advice, you have already complied with the new licensing requirements.
``The only thing you would have to do is update those documents if the client's circumstances change. When you do a trade it's simply a statement on whether the trade is in line with advice and whether the circumstances of the client have changed. It really should come down to just ticking a few boxes of an existing contract note."
Senator Campbell and Pauline Vamos, head of the financial services reform licensing project at the Australian Securities and Investment Commission, also point to caveats in the legislation, such as the ``execution related telephone advice" (ERTA) exemption, introduced several months ago.
ERTA allows brokers to bypass the SOA providing they have prior permission from their clients to forgo any advice.
``Stockbrokers will be writing to all their private clients among the 5.4 million Australians investing directly in the Australian stockmarket, arguing forcefully against the need for an SOA and asking their clients to either waive the requirement . . . incur the costs associated with [its] production . . . or seek alternative arrangements ie, take their business elsewhere," said Bell Potter in its submission.
Hopes of a resolution are pinned on a discussion paper still being drafted and scheduled for publication in the next couple of weeks.
``The legislation is fine but if it needs to be fine-tuned, we're prepared to do it," Senator Campbell said.
© 2003 Sydney Morning Herald
