The Association of Financial Advisers (AFA) acknowledges that the removal of grandfathered commissions is a necessary step in the journey towards professionalism and in building consumer trust in financial advice.
However, AFA CEO, Philip Kewin said the AFA is deeply concerned about the lack of industry consultation, the limited timeframe and the lack of guidance for impacted advisers.
“We are particularly concerned that the Bill to end the grandfathering of commissions on investment and superannuation products announced by the Government this week does not adequately provide a mechanism for exemptions where the client is better off in their current arrangement,” he said. “We are also concerned that there has been no assessment of the number of consumers impacted by this measure.”
Mr Kewin said the AFA disagrees with the assertion in the Explanatory Memorandum that the Royal Commission was an equivalent process to a Regulation Impact Statement. “The removal of grandfathered commissions is actually highly complex and can’t be dealt with simplistically, and certainly not in such a short timeframe. Retrospective legislation is not common for Governments, and often creates significant challenges.”
The complexity arises because of the huge variety of products, administration systems and client situations. “There are numerous different scenarios with a multitude of different consequences,” he said. “In some cases this might be straightforward for the financial adviser and their client, however in many thousands of cases there is a genuine risk that clients who are happy in their current product and receiving valuable ongoing financial advice and related services will either lose access to that support or be required to pay more to retain it.”
Mr Kewin said consideration needs to be given where a client is prevented from moving products as a result of Capital Gains Tax, grandfathered Centrelink Asset Test treatment or insurance issues.
“Financial advisers will need to spend a significant amount of time dealing with a variety of challenging situations. They will be required to contact their clients, review their circumstances and make a recommendation, which in many cases would involve an additional fee for that service. It will take some time for the product providers to prepare for these changes, meaning that the proposed window will not be sufficient for either the advisers or the hundreds of thousands of impacted clients. Financial advisers will also need guidance on how to confront this challenge but none has yet been provided.”
The AFA is arguing for greater industry-wide consultation on the unintended consequences of a ban on grandfathered commissions, a three-year transition period and provision for exemptions where the existing product is best suited to the client or the client may be disadvantaged by changing their current investment or superannuation product.
“Removing grandfathering in a manner that ensures that it works in the best interests of clients will take a lot of work by many stakeholders and that takes time,” he said.
About the AFA
The Association of Financial Advisers Limited (AFA) has been the authentic voice on the value of financial advice for over 70 years. Today, the AFA is a vibrant, innovative association, where the underlying driver of policy is the belief that great advice transforms lives. To this end the AFA is striving to achieve the vision of Great Advice for More Australians. The AFA’s ongoing relevance as a professional association is derived from its success in engaging with the major stakeholders in financial advice including advisers, consumers, licensees, product and service providers, and the regulator and government. Culturally the AFA believes in the value of collaboration to create powerful outcomes and this drives how we achieve influence and work towards our vision.