Last week, the royal commission released submissions from both ASIC and the FPA arguing that grandfathered conflicted remuneration is problematic and should be phased out.
ASIC said the practice should be ended “as soon as reasonably practical”, while the professional association offered a “three-year transition period” recommendation.
In stark contrast, the AFA’s submission rejects the notion that grandfathered commissions are a cause of misconduct.
“We do not believe that the continuation of grandfathering has a cultural influence on the issue that has been addressed by the royal commission with fees for no service,” the AFA submission stated.
“We do not believe that there are grounds to cease grandfathered commissions, although we note that more can be done to ensure that these clients are being serviced.
“Removal of trail commissions through a regulatory means would be a very complex matter and is most unlikely to directly benefit the client in any way.”
The submission goes on to list a number of cases where it may be disadvantageous for the client to “move from a trail commission paying legacy product to a new post-FOFA product”, such as where an exit fee exists on the product or where there may be capital gains or Centrelink implications.
Instead, the AFA recommends that licensees monitor their advisers to ensure that any advice relating to grandfathered products is in the best interests of clients.
A full list of the submissions made to the royal commission can be read here: https://www.ifa.com.au/news/25505-royal-commission-round-two-responses-released
There still seems to be a ridiculous amount of discussion of “commissions” without properly defining the term. Some regard commissions as payment for the sale of a product, while others seem to regard any fee ($ or %) collected via a platform as a commission. Advisers need a clear statement of this to ensure they are “commission-free” especially if they are to be banned. From my perspective, clients prefer to pay $ fees and in most cases, from their super or investment fund. If more super funds allowed payments for advice on super to be paid from the fund, there would be less switching, and advisers could charge a proper fee without any conflict. Clients without significant super or investment balances to warrant this could pay by some other method.
I reckon if you could solve the “how we get paid” issue, the separation of advice from product would largely disappear.
This anonymous person has a hell of a lot to say, but without attribution. How about he/she NOT be published unless prepared to use their name?
Interesting the commentary from some that advisers that still receive commissions are dodgy. As an example, there are many age pension clients in the old lifetime annuities where the adviser receives an ongoing trail of circa 0.5%pa or lower. If this commission stops there is no ability for the institution/provider to rebate to the clients account so the provider not the client will get the windfall. Many of these advisers at no extra cost or remit from the client assist these people with Centrelink and other matters, often at loss to the adviser on a time fee basis. If these commissions stopped and the adviser the had to charge these clients on a fee for service basis many of these clients could not afford to pay and would be in great stress if the relationship had to cease. By law, advisers must act in the best interests of their client and I would argue that in the above example, the extra cost to the client for no extra benefit would not pass this test.
Just as the success and skill set of a number of these fee only advisers promoting themselves is often the opposite to reality, not all commissions are equal.
And as the asteroid hurtled towards the earth, the dinosaurs continued to feed as they lay about, not really doing too much at all, as they gorged themselves on the bounty that was all around them. They all looked up and saw the shadow of that which was about to annihilate them all. ‘The association of dinosaurs should save us, get up there and do something”, they all exclaimed ! But sadly, the dinosaurs were doomed. Meanwhile, the nimble, smarter ones, had fled. Up to the mountain of professionalism they went, climbing the hills of academia on the path of ethics and compliance. But sadly, for the dinosaurs, they were too big and fat by now to make the journey. And so, they shouted even louder “save us, save us”. Alas, the shadow became larger..
Just like many advisers, the FPA are FINISHED!
A bank enquiry leads to banks getting more powerful and small businesses getting squeezed. What a joke! I have never liked FPA and now even more. Anyone who is a member of FPA should call it quits today you may feel this is the right move but seriously they are demolishing an industry that is moving in the right direction, it takes time. I am an honest and servicing advisor who just bought a trail book last year and working through the book and seriously some clients are happy where they are and the ongoing fees are very competitive too and there is no real need to switch them too. If this is passed, I am leaving the industry for sure not because of anything but disgust at how this industry wants to show professionalism but it only shows greed and red tape by these greedy people such as FPA.
My name is Michael O’Hara. I am sufficiently comfortable with my own ethics and actions to publish a comment in my own name.
I am a financial adviser and part owner of a business that has been in business for over 20 years. Some of our clients were the clients of the father of one of my business partners who has since retired – that’s over 50 years of ‘connections’ between our business and clients.
I take affront at those people who slander me as “dodgy”, simply because I have a longer tenure in this industry than they do. I am appalled at the lack of professional integrity on display, as financial planners following one business model pour scorn on another adviser simply for following a different business model.
I am frustrated at the lack of understanding of policies and legacy products being displayed by many financial planners, by legislators, by regulators, by industry associations and by commentators.
There are more stake-holders in this issue than just regulators and unimpacted commentators. There are clients, who have the right to be treated as individuals capable of making an informed choice. There are advisers who may have borrowed to purchase “a book of business” with the intent of moving those clients to a newer, in-vogue service package. There are advisers who have discussed the ongoing commissions with their clients, making the commission a known point. There are advisers such as myself, who worked late into the night years ago – for virtually nothing – to put in place accounts for clients in the knowledge that IF the client chose to keep my name on their account that eventually my efforts would return a profit.
And there are institutions who will gleefully take the adviser’s name off the account but will not rebate or reduce clients’ fees or costs. Who wins in such a move?
There is no need for legislative change that takes no account of individual positions.
Institutions pay an AFSL a commission from a product. To pay the commission their systems must identify the amount and details. All that is required is to include a note – mandated wording if necessary – where a client can elect to reduce their fees by cancelling the payment of the commission. The institution should be obligated to either reduce fees by the amount being paid to the AFSL or should rebate it to the client account.
Each renewal/update should include a reminder for the client to be able to do this.
“Informed consent”. It’s a simple thing, and it is less shotgun in its impact than wholesale changes based on mob rule and knee-jerk reactions.
I have clients who pay an hourly rate for my input or assistance with money matters, and I have clients paying annual fees and I have clients paying via legacy account commissions and I have clients on a mix of all of the above. In our business, it is up to the client to decide on how they pay. That’s my business model and the Libertarian streak in me prefers that clients have freedom of choice.
Our emphasis moving ahead is to reinforce “informed consent” and to continually try to be better at identifying when that may not be occurring. My world is not perfect but I recognise this and will always aim to be better.
So you have my bias and you have my disclosure of interest and you have my opinion. Feel free to call me “dodgy” but I would be quite comfortable to match my ethics and understanding of ethics against whoever may make that call.
How refreshing – well said Michael.
I’m not sure reason & sensibilities are welcome in this debate. It is an age of hysteria & over-reaction thanks to our news cycle & desire to be shocked & outraged as opposed to factual.
I agree completely, lets as an industry not lose sight of the fact that all Australians should be provided with the means of obtaining financial advice, ethically and affordably.
Whether they meant it to be or not, the FPA’s response to the RC is effectively their suicide note as an industry association. Planners who are committed to the old ways of doing things will leave the FPA in droves.
The question the FPA needs to consider now is whether it wants to vanish altogether, or continue on in a slimmed down form as a credible professional association. If it is the latter, they need to quickly enhance their credibility by terminating the so called “Professional Partners Program” and rescinding the CFP designation from those who obtained it via grandfathering. It doesn’t matter anymore if people complain and they lose some revenue. This is now a question of survival. There is a actually a lot of latent demand from planners for a credible professional association. The FPA should be thinking about getting an early mover advantage on securing that role, rather than clinging to the sinking ship of past practices.
Just agree a 6 year transition period in line with the new qualifications required. Most advisers will gone by then anyway. End of problem!
I think Financial Advice as a career or business or an option for customers is basically over. We have ASIC and government who think advisers can work for free and customers don’t want to pay or can afford the sort of fees needing to be charged to make advice accessible with the regulations we have (except for the very few rich ones). Commissions in this respect have always worked for middle or lower income customers but commission is of course a dirty word now.
Take all of this into account and why would any adviser want to re-qualify for this industry to earn very little in the future. Better to re-qualify in something else and for new entrants to find a better career.
As for the FPA and AFA they need to accept they are over too. They will be lucky of they have 30% of the membership they currently have in 6 years time.
that’s true, financial advice as a career is over thanks to all the greedy people including big instos, dealer groups etc
Yes, unfortunately everything the so called consumer associations like Choice and CALC are doing in this area is also making it harder for consumers to access affordable financial advice.
We know that Labor is trying to remove consumer access to professional advice in order to get more money into union funds. Liberals are trying to remove consumer access to professional advice in order to get more money into real estate. But why are the consumer associations acting in such an anti consumer manner?
Yup. The career of flogging rubbish which lines the pockets of those who do the flogging is over. Oh, well. How sad. If the FPA has 40 percent fewer members because the dinosaurs have moved on ? I can’t see a problem with that. And the fact the AFA has decided to give the RC “the bird”, has confirmed their future irrelevance in any ongoing debate.
The only ones left at the FPA will be AMP & CBA advisers because it was made compuslory to join the AFA or the FPA and they have there memberships paid for them.
So glad I joined AFA… even the FSU said that removal of commissions would unfairly impact small business. All these ideological idiots calling for commission ban… I’m guessing they’ve never run a business… watch the industry get decimated… what next… General insurance… mortgages… be careful what you wish for
Stop putting your profits ahead of the well being of your clients maybe? Its not the client’s fault people paid ridiculous multiples for books on the assumption they would never have to actually service the clients… Be happy you could get away with fee for no service for this long.
Receiving remuneration by way of commissions does not equal “fee for no service”. In fact, the appearance of the fee-for-service Sam Henderson at the RC demonstrates that all remuneration methods are conflicted in one way or another and that favouring one method of another will not solve the problems that have been identified.
Finally an association standing up for its member views, and not their own sycophantic agenda like the FPA.
There is a vocal minority calling for this change, with the highly questionable ASIC releasing an idiotic statement of late that if is there are no client complaints then clearly there’s a problem!
Unfortunately we have ‘purists’ in our profession who look down their own noses at anyone collecting commissions, and yet have highly questionable issues within their own firms (not that they would ever admit or perhaps be intelligent enough to identify).
We have minimal in our firm but recognise that these play an important part in other firms. Eventually these will all phase out naturally given their nature.
For the purists, be careful what you wish for in your naive ignorance, as it is likely to extend to investment or super funds not even being allowed to collect or pay fees on behalf of AFSL’s or advisers. And if you do direct invoicing yourself already, I would equally challenge you that this is not efficient nor in your client’s best interests, and you should look at the broader issues for all clients/firms rather than your narrow erroneous small minded view of what the world should look like.
No surprise – dodgy advisers who rely on grandfathered commission to stay in business. Time to ban it and force product providers to pass on the benefit to clients – good advisers will dial up their disclosed and transparent advice fees up to account for the difference if they feel they add the value that warrants it. Some legislative changes to apply CGT relief and welfare entitlements to be unaffected from product moves and we are on our way to a better end result for clients.
you would want to also include legislatie requirements to enfforce all product providers actually rebate the trail – as there are a truckload of products whereby if the trail is turned off, the client does not reap the benefit of this and instead stays in the product providers pocket. Surely the client interest has got to be the priority here and current arrangements mean the client would be no better off in a lot of cases.
Any other general statements… dodgy advisers? Are we all dodgy or just those ones who provide bad advice… you clown
Grandfathered commission is not being removed to benefit the consumer. Grandfathered commission is being removed to improve the margin of the product provider. Same deal LIF.
Lol no, they are being removed so advisers don’t get paid unless they provide a service. Pretty straight forward.
Agreed, in fact most evolved Advisers already agree with that, but you won’t get much support for this concept in this forum. A lot of posts from people who think they are entitled to take a passive clip off the national savings pool. That’s over now and they will all be gone soon enough.
Labelling advisors that don’t quite fit-in with your world view as ‘dodgy’ is naive and sophomoric. Assuming you grow up and run your own business one day, you’ll realise that the world isn’t perfect, business continually evolves, and sometimes, for the greater good, compromise is required – adults understand this.
Your comment is completely misleading to the point of being deceptive. Commissions are no more or less “transparent” than any other method of charging.
Many commissions are not included in the FDS boof! How much more hidden can you get?
How about the government don’t make stupid rules like trapping ABP’s in older rules before they changed Centrelink, etc What an absolute stupid rule that was from government / O’Dwyer.
Sure get rid of grandfathered income – but also ensure:
– No exit fees to leave these products
– no CGT to leave these products
– no loss of Centrelink grandfathered rules, etc.
In a dream world the government / O’Dwyer would have some common sense.
I say in a DREAM WORLD !!!
I’m not an FPA ‘basher’, but as a small business practitioner I’m utterly appalled at their behaviour on this issue, and so we’ll be moving memberships to the AFA at next renewal.
Can someone please correct me if I’m wrong? The grandfathered commissions I have seen turned off have not been rebated to the client’s account. Instead the find manager has pocketed the commission and insisted the adviser charge the client a fee which is not reflective of a corresponding rebate on the commissions which were turned off. I assume different fund managers tackle this differently but from what I have seen the only beneficiary has been the fund manger. As I said I am happy to be corrected.
I’ve found the same thing. It depends of the firms. Some like CFS, allow you to rebate the commission allowing a fee to be charged. Some will turn off the commission when no adviser is attached. Some companies won’t allow the commission to be turned off and pocket the commission themselves. Some have the policy of pocketing the commission and passing it onto the dealer group. The reason being is that the adviser is not the criminal here folks it’s the friggen big end of town that likes to keep the commissions when there isn’t even an adviser attached.
Gravy anyone?
I’d love some Loast Ramb.
Honestly these weak, ‘nameless’, ‘faceless’, sarcastic, people masquerading as ‘anonymous’ are completely irritating.
Gutless lot.
The FPA gets a greater proportion of their income from firms like AMP & CBA Financial Planning via the professional partner program. I think the FPA is more about protecting this relationship then actually looking after the public interest. It’s an easy way to turn the attention off large institutions like the one’s I mentioned and just once again blame planners. Why don’t we just ban planners now and get it over with? We (advisers) have a fiduciary relationship with clients since 2013 so getting commissions and providing no service won’t stand up in a court of law if anything was to happen….it’s a ticking time bomb..so all the clients I don’t service, I took a hit and ended the relationship over the last 4/5 years.
Looks like our firm is moving memberships from FPA to the AFA.
Switching products will have adverse implications for age pension entitlements and Commonwealth Senior Health Care card assessments. Will also trigger potential CGT. Who will be responsible for these consequences if clients are forced out of these products ? On what basis does a fund manager have to change an adviser service fee commission that is built into the unit price ? If this is allowed then why can’t the client elect to have the ongoing commissions paid to fund managers or the platform providers be reduced instead of the adviser service commission ? Who is the arbiter that fund manager fees and platform fees are reasonable and why aren’t they referred to as trailing commissions ?
Much more sensible approach than FPA