ASIC’s report on ending grandfathered conflicted remuneration, released on Friday, revealed the extent of pre-FOFA grandfathering arrangements in the advice sector and the impact on the industry from the banning of these arrangements on 1 January 2021.
The report used data from the top 10 advice licensees and 93 product issuers to assess the level of grandfathered commissions being paid in the 2019 financial year, in the 2020 calendar year leading up to the ban on commissions, and finally after the ban in January 2021.
Product issuers had paid around $816 million in grandfathered commission revenue to licensees and representatives in the 2019 financial year, not including exempted remuneration such as risk commissions. In the 2020 calendar year, this dropped to approximately $760 million.
The report showed that the vast majority of product providers – 66 per cent – terminated their grandfathered remuneration agreements with licensees during the last quarter of 2020, with 11 per cent terminating agreements in the third quarter and 12 per cent in the second quarter of the calendar year.
Just 4 per cent of agreements among eight product issuers were not terminated by the 1 January 2021 deadline, with customer rebates still to occur across the 46 products concerned.
“These eight product issuers estimate that they will rebate $24.4 million to product holders in the 2021 calendar year,” ASIC said.
“The eight product issuers indicated that for two thirds of their products (67 per cent) rebates would occur by fee reductions. The next most popular method was a direct payment to product holders (17 per cent of products).”
The report also collected data from the FPA and AFA around the economic impact of the changes on advisers and how they had adjusted their business models as a result. FPA data indicated that 93 per cent of the association’s members were using grandfathered commissions to fund an ongoing advice relationship with their clients.
Around half of FPA members said they had transitioned commission clients to an alternative fee arrangement after 1 January, with the remainder having stopped providing advice to these clients. About 25 per cent of commission clients among AFA members had been transitioned to an alternative fee arrangement, with the rest either serviced on a one-off or pro-bono basis, or no longer a client.
“Surveyed AFA members generally focused on moving their higher value clients to ongoing fee arrangements,” the report said.
“Some AFA members have moved their lower value clients onto ongoing fee arrangements. However, they consider that this is not a sustainable position.”
25% of clients being serviced, there we go ladies and gentlemen, 75% of people losing the adviser relationship.
So………ASIC is only now assessing how much was being paid? Not before the legislation?
Nice to see FPA/AFA siding with ASIC/GOVERNMENT again…..saying all the right things to justify the banning BUT scant detail on who actually gets to keep the cash….wont be the client that you can be assured of.
We have all been crewed —advisers, clients etc.
Yep – any wonder why so many advisers leaving? These industry ‘associations’ and politicians should be abjectly ashamed and publicly exposed and ridiculed for the frauds they are and the significant damage they’re doing – all on OUR dime (taxes!) !! Talk about INSULT added to injury.
up to 75% of the commission clients now have no advisers and have to pay a relatively high fee if they want any advice. How is that good for consumers, I wonder.
I would argue that these clients never had contact with the so called Advisers anyway. The Adviser was simply collecting the fee and providing no service.
Definitely true in some cases but certainly not all. Many are now unadvised as uneconomic to maintain them as clients, unfortunately.
In almost all cases, the advisers completed work without charging a fee or charging a fraction of what it cost. The ongoing remuneration was simply a deferred payment model, with the benefit of ongoing access to advice when required. Nowadays, consumers have had their access to advice taken away from them, unless they are willing to pay a large upfront fee and submit themselves to inane red-tape and meetings with the adviser at a time that conforms with the demands of regulator instead of their own personal preferences. ASIC may think they are the modern day equivalent of Robin Hood. But in truth, they have done a great disservice to Australian consumers who are largely now on their own and a sitting duck for unlicensed scammers and fraudsters. They have also trashed jobs, the impact of which, is fast approaching the devastating losses from the car industry.
Well said
Very well said. This is typical of regulators, lawyers and bureaucrats who have no idea of the relationship and services provided by advisers to clients. They all think on a transactiopnal basis, not an ongoing relationship basis. So many smaller clients now have no way of getting advice at a price they can afford.
100% correct
ill give you a list of 100 clients that did get contact and I never had to charge them a fee. I guarantee they found value in our meetings. now I can’t see them unless they pay a fee, lets ask them how they feel about that? due to a legislation change that was meant to make life better for them.
The trail has gone back to the banks and AMP.. The contract was between the adviser and the fund manager so the trail was paid to the adviser who had that product contract. There was no contract between the client and the fund manager. So the fund manager cannot pay it to the client. The banks have kept the money in their cash account and can’t pay it to the client as there was no contract to pay it to them. No hope of AMP paying it out to clients. This income was kept outside by the Labor govt in FOFA in 2013 because it was the property of the adviser. The LIBs got rid of it. looks good for them on paper – we did the RC recommendations and screwed the clients.
Not true AMP rebates to clients.
After they lifted all the insurance premiums to cover it.
who is AMP do they still work in financial planning???
So in summary…
– 75% percent are now not receiving advice.
– approximately 3% of the ‘saving’ will be of benefit to the client.
Jackpot! FSC members win again!
If anyone still believes the reforms are meant to be for the end client they must be living in some alternate universe.
Great they have turned off the commissions, resulting in low fee paying clients getting no service anymore. However the real question is for those products where the commission was inbuilt in product fees where is the guarantee that the client gets 100% of the commission rebated to them. I’m sure we can trust product providers like AMP to do the right thing by the client!
There is no guarantee. This is the abject criminality of it all. No other word for it. Hidden in plain sight – they’ll get away with it as usual. Big end of town all sleep in the same luxury hotel on taxpayer dollar so to speak. Always have always will until we the sheeple do something . . . yep, that’ll be never.