Phil Anderson
Submissions were due to Treasury on Friday in response to the draft legislation on ending grandfathered conflicted remuneration for financial advisers.
We appreciate that opinions are divided on this measure, however nonetheless it is an important recommendation out of the Royal Commission and there is a lot of complexity in ensuring that the right outcome can be achieved.
In our submission we have emphasised some key points:
- We acknowledge the support for a ban of grandfathered commissions by the Royal Commission and all sides of politics and agree that they should not be paid when no services are being provided.
- Any legislation needs to work in the best interests of clients, noting that in many cases, clients might have been prevented from moving to a fee for service product as a result of exit fees, CGT, Centrelink tests and insurance.
- Many financial advice practices have business loans and will have already been impacted by changes in the valuation multiples applied to grandfathered commission clients. This will cause significant financial stress for some practices, particularly those who have recently purchased client books on debt with grandfathered commission clients.
- There is a lack of clarity with respect to how these changes will be implemented and we are seeking greater certainty.
- We are seeking clarity on how this change will impact other grandfathered benefits paid to licensees.
- The proposal to ban grandfathered commissions and rebate these payments to clients will be very difficult to implement, particularly for legacy products.
- Analysis of the public statements from back at the time of FoFA shows that grandfathered commissions had broad support and that there has been no sign that this could suddenly change.
- There is very little data on the extent or impact of grandfathered commissions, however the available data suggests that the level has declined materially.
- With respect to the issue of Constitutional rights and the acquisition of property on other than just terms, we have called on the government to explain why they believe that this is no longer relevant.
We have put forward the following recommendations:
- Any ban on Grandfathered commissions should only be implemented after a three-year transition period.
- Certain legacy products such as lifetime annuities and whole of life should be exempted.
- Clients should have the option to opt-in, in order to continue a grandfathered commission arrangement where they can continue to access financial advice.
- Government should provide CGT rollover relief and Centrelink rollover relief.
Download the AFA submission
By Phil Anderson
