The federal government has announced stamping fees relating to listed investment companies (LIC) and listed investment trusts (LIT) will be banned from 1 July 2020.
Stamping fees are one-off commissions payable to LIC and LIT managers for the role they play in capital raisings associated with initial public offerings of shares.
Until now LICs and LITs have been exempt from the abolition of up-front commissions that have applied to other financial services product providers.
According to Treasurer Josh Frydenberg the banning of these fees will improve consumer protection and clarify the regulatory framework regarding these types of investments for stockbrokers, financial advisers and fund managers.
“Extending the ban on conflicted remuneration to LICs will address risks associated with the potential mis-selling of these products to retail consumers, improve competitive neutrality in the funds management industry and provide long term certainty so that this segment of Australia’s capital markets can continue to operate effectively and provide investors with opportunities to diversify their investments,” Frydenberg explained.
The Treasurer specified the ban did not apply to real estate investment trusts or equity and debt securities in trading companies, including hybrid products.
“Maintaining the existing treatment for these investments is designed to ensure that direct capital raising activities which support the economic activity of companies in the real economy are not impacted by these changes,” Frydenberg said.
The Listed Investment Companies and Trusts Association (LICAT) acknowledged the government’s decision and said its members would make the necessary changes to comply with the legislative amendment.
“Our industry will now consider the adjustments required to ensure a smooth transition to the new law to ensure that there is no disruption to the quality and integrity of the capital raising process for closed ended listed investment vehicles which continue to play an integral role in supporting Australian investors, businesses and the overall economy,” LICAT said.
The organisation called on parliament to consider other service provider costs of preparing for a capital raising including arranger/manager fees when drafting the legislative change to make sure they are not unintentionally prohibited.