In its response to the royal commission interim report, AMP goes as far back as the introduction of the FoFA reforms in 2011 to illustrate its position on adviser commissions.
“In order to secure passage of the legislation, the then assistant treasurer and minister for financial services and superannuation – the Hon Bill Shorten MP – gave a number of commitments to advisers, one of which related to grandfathered commissions. These commitments were set out in detail in the minister’s press release dated 29 August 2011,” AMP’s largest submission states.
The 2011 comments from Bill Shorten read:
“Following legal advice from the Australian Government Solicitor, the government has determined that the ban on conflicted remuneration (including the ban on commissions) will not apply to existing contractual rights of an adviser to receive ongoing product commissions. This means, that in relation to trail commissions on individual products or accounts, any existing contract where the adviser has a right to receive a trail commission will continue after 1 July 2012, or in the case of certain risk insurance policies in superannuation, 1 July 2013. This means that trail commission will continue to be paid in these circumstances.”
AMP notes that the passage of the FoFA legislation was “highly contentious” seven years ago and doubts whether the reforms would have passed through Parliament if the minister had not provided these assurances to advisers.
“In light of the above, it is arguable whether the statement included in the Commission’s report on page 97 that ‘the grandfathering arrangements were temporary and exceptional measures’ is factually accurate,” AMP said.
“It is also important to recognise that both ASIC and Treasury noted there may be constitutional issues associated with banning grandfathered commissions.
“In short, there is considerable history and previous commitments given by ministers to advisers that make the issue of removing grandfathered commissions problematic.
“Transitioning away from grandfathered commissions is not easy; it needs careful consideration before decisions are taken. It is for that reason that AMP has taken a cautious approach to the issue of ceasing grandfathered commissions.”
AMP outlined its position on the matter, agreeing with Treasury and ASIC that there may be constitutional issues associated with banning grandfathered commissions.
The group noted we that legislative measures to remove grandfathered commissions “risk extinguishing the property rights of existing contracts and accordingly that AMP does not support legislative measures of this nature”.
However, AMP ceded that in light of community sentiment surrounding grandfathered commissions, AMP supports transition away from grandfathered commissions in a manner and timeframe agreed with the industry together with appropriate legislative reform.
The conditions of AMP’s agreement to remove grandfathered commissions include government and regulatory facilitation for scoped advice (for example the ability to be able to provide a record of advice rather than a statement of advice).
AMP has also demanded government support for the removal of impediments to the transition for members, such as capital gains tax relief.
“Such legislative measures would aid in the transition to contemporary products without grandfathered commissions, if it is in members’ best interests to do so,” the group said.
“A reasonable transition period is required to provide sufficient time for industry participants to implement required changes, including to business models, systems, disclosure documents, advice and communications to members, to minimise unintended consequences for customers, financial advisers and the community in general.”
Of course the careful consideration of actually moving product should it contain a grandfathered commision but don’t forget the ghost in the room…. Volume bonus or marketing allowances …. oh no we would never think of that !!!
The Royal Commission is doing things in too much of a hurry and with way too much self-confidence. It should stop worrying about tomorrow’s headlines and spend more time reading, listening and learning.
end of grandfathered commissions means “old school” planners would have to work now, about time they introduced themselves to their so called clients. Bye Bye 4 times book value.
You are a sad person.. I guess you are salaried and never had guts to invest in a business
Sad. I have had a FP business with AMP and tbh was quite disgusted at the PD days where the principles and owners loaded how much FUM they had and the size of their business, I moved out when i saw the writing on the wall of how AMP and their advisers are.
It is about time they had to educate themselves and get back in contact with clients, and btw, I am educated to MBA and currently completing a PhD and am aged 60, so for these “fat cats” age is no barrier, just a commitment to excellence which i fear they have lost, (foo much time on the golf course).
Labour, promises? Factually proven Labour doesn’t understand the meaning of the word, socialist liars.
It strikes me that the simplest move here would be to have the fund managers “buy back” the affected policies and then that would remove the issue of the contractual property rights. it strikes me that one way or the other this will take anything from 2 1/2 to 3 years to play out and the cost to the fund managers will be about the same, or perhaps greater in a time where they are scrambling to defend their behavior anyway. it would do a number of things (IMHO) 1. it would satisfy the regulator, and Bill (don’t believe everything I say ) Shorten, 2. remove uncertainty for advisers who could then use that “windfall” to pay down debt, invest in systems to help deal with the new world of digital advice. 3. probably have further savings for the life companies, banks and fund managers as they grapple, argue and save a motza on legal fees. 4. Make life a wee bit easier as far as the constitutional issues are concerned with having to enact retrospective legislation .
It could be seen as a good move by consumers and advisers alike.
But I guess this idea is too simple and easy for anyone to take it seriously .
Book value of AMP = $0
If they just let it be for 5 years they will practically be all gone anyway. a storm in a tea cup.
Too much common sense.. that wouldn’t keep the lawyers in a job on this gravy train called RC