Retail share trading platforms must better-disclose service limits that can cut clients off from important equity ownership benefits, according to the peak investor relations body for Australia and NZ.
Ian Matheson, Australasian Investor Relations Association (AIRA) chief, said the so-called ‘retail investment facilitators’ – or IFs – had a duty either to supply the full benefits of share ownership to customers or detail their service shortcomings in marketing materials.
The so-called ‘full share-owner experience’ (FSOE) includes timely access to company information, voting rights, meeting invites, ongoing investment opportunities and other benefits such as corporate discount cards.
“Share investors might be unknowingly giving up some important opportunities in exchange for discount trading and frequent flyer points,” Matheson said. “But it should be clear to investors what they are and aren’t getting from their [IF].”
He said regulation might be necessary if the industry transparency standards don’t improve over time.
In a white paper published last week, AIRA says some of the rapidly expanding number of retail equity-trading channels – a group including direct online services, adviser-intermediated platforms, superannuation fund options and separately managed accounts – fell far short of the FSOE afforded to traditional direct shareholders.
“While we do not doubt that all service providers facilitate the delivery of the Economic Benefits… to each of their clients, from that point on, exposure to the remaining benefits is far less certain and somewhat concerningly, we believe many Retail Investors are unaware their experience is any different – and perhaps significantly so – to that of a direct shareholder,” the AIRA paper says.
“… Of most concern to us is the failure of many ‘Investment Facilitators’ – those service providers who arrange transactions but do not carry out the purchase/sale of investments themselves – to enable the flow of information and opportunity from the listed companies in which their clients have sought to invest, to those investors, whereby depriving them of the FSOE.”
In particular, the AIRA report – produced by specialist Australian research firm, Listcorp – says retail trading platforms built on shared custody models (as opposed to individually allocated holdings) typically offer the most limited services.
But the decision by trading platform providers to restrict the information flow to underlying share investors is likely based on commercial reasons rather than technical roadblocks.
The AIRA paper says it “may only be a matter of custodians and/or their service provider masters, passing on the information and opportunities provided them by the share registries, to the underlying indirect shareholders in a timely fashion, in order to deliver them the FSOE”.
Matheson said while share-trading platforms should be aware of the problem many didn’t either have the technology or the commercial motivation to improve client services.
“It’s not always in their business models to provide FSOE… someone has to pay for it,” he said.
Formed in 2001, AIRA members include most of the large listed firms in both Australia and NZ.
AIRA aims to “provide listed entities with a single voice in the public debate on corporate disclosure and to improve the skills and professionalism of members”, the group website says.