Last week, ASIC deputy commissioner Peter Kell and counsel assisting the royal commission Michael Hodge both flagged concerns with the grandfathering of commissions, with Mr Kell describing the provisions for grandfathering as “extremely expansive” in terms of both the circumstances allowing for grandfathering and the time period for which it remains permissible.
“Leaving aside the legal test, grandfathering – the entire provision is not in the interests of consumers. The Parliament has, in effect, put in place a provision that enables the continuing payment of commissions that generate conflicts of interest and unnecessary costs widely across the financial system,” he said.
“I think for the interests of consumers in the financial system as a whole, it would be highly desirable to have this dealt with at a policy level.”
Responding to ifa’s questions regarding the comments from both Mr Kell and Mr Hodge, AIOFP executive director Peter Johnston, however, said policymakers should be focusing on carve-outs for vertically integrated businesses and SMSF structures before looking to make changes to grandfathering arrangements.
“The political lobbying around FOFA totally compromised the objectives of the legislation where vertical integration and SMSF structure effectively received carve-out from the conflicts of interest aspect of the legislation,” Mr Johnston said.
“This created a massive unlevel playing field where institutionally aligned and SMSF advisers could receive cross subsidisation benefits from their activities whilst independently owned practices who operated their own AFSL and did not deal in SMSFs, could not.”
Mr Johnston added that while the current grandfathering arrangements are not perfect, “we don’t have a perfect market” either, and that removing grandfathered commissions may result in detrimental outcomes to some clients.
“Trying to unravel some client product structures will be a distinct disadvantage to consumers, rendering a blanket ban impractical and not in the best interests of some consumers,” he said.
“Putting aside contractual obligations around grandfathering arrangements, once these two ‘anomalies’ of vertical integration and SMSFs are addressed then, and only then, should grandfathered revenue be addressed.”
Responding to the same questions, the AFA’s general manager of policy and professionalism, Phil Anderson, said it “has previously made its position on grandfathering public”, noting that the majority of the most recent round of hearings focused on corporate superannuation.
“We have until 25 September to respond to the questions raised at the recent hearings and will respond accordingly,” he said.
The FPA were unable to meet ifa’s deadline for responses.
FPA in hiding yet again with their institutional mates
SMSFs have become the most dangerous financial product by far for Australian consumers. They have been given virtual immunity by regulators and successive government inquiries. Consequently they have been massively over prescribed, and have become the new home for dodgy practices.
Rubbish, yes there are some dodgy SMSF advisers /accountants like every industry.
But on a whole most SMSF clients are much more engaged in their Super and Financial Planning and as such benefit from being engaged and getting good advice they implimemt.
SMSF property 1 stop shops need to be seriously stopped though.
Engagement is not necessarily a good thing when it comes to super. Especially if SMSF members are “engaged” in…
– Property speculation
– Bitcoin speculation
– Concentrated portfolios of Australian bank shares
– Buy high sell low trading activity based on media noise
– Propping up failing family businesses
– Below market rental properties for family members
– Early withdrawal schemes
Impending doom for volume bonuses that help subsidise businesses, clients pay higher product fees rather than just paying the advice business what it costs to deliver a service. Transparency is scary for some.
And that impending doom is justified. Lets get to the point where money changing hands is actually justified by a service… Whether thats fund manager, platform, dealer group or adviser… Add value and get paid, its simple.
Not really. A firm charges say $300ph for advice but $220 of that covers compliance. Do we call that a value add? If the advice industry converts to fully fee for service and no ongoing monthly review fees etc – will the regulators relax the advice compliance requirements? If there is absolutely no conflict, what do we have to prove by doing a 60 page SOA? We should be able to do a 2 page recommendation document. Timely and efficient advice. That’s what the public wants, that’s what we want. Will we ever get there?
$300 ph for good advice does add value. Unfortunately, that $220ph in compliance exists due to things like shelf space fees… Rid the conflicts and the compliance can eventually reduce as there will be less incentive to recommend anything other than what is best for the client.
Not whilst ever Financial Planners openly want to be licensed under a product manufacturer. We will continue to be over regulated and be considered by the wider community as scum whilst ever we have this relationship. We will continue to be easy targets of Government and be used as an excuse by Banks. There should be two categories of advisers, aligned and un-aligned.
Another person with no knowledge of what an SMSF is expressing opinion concerning SMSF. When will these people wake up and stop passing comments in respect of the entity that they clearly know nothing about. The members of the SMSF are also the trustees of the SMSF and all of the investment decisions are made by the trustee. Simple I know but it’s a fact.
So what about a financial planner recommending a client to open up a SMSF and for their accounting side to lodge the tax return and arrange the audit. Isn’t that another form of vertical integration?
The real vertical integration is the banks funding the regulator, ie ASIC, at one end, and the banks funding the regulated, ie their AFSLs, at the other end.
One extremely expansive and highly profitable distribution system, direct from the regulator to the regulated, with no one prepared to speak out about the obvious entrenched conflict of interest.
When will the AIPFP address this issue? When will ASIC say no to bank funding?
In reality, it is usually the accountant recommending the client establish an SMSF. They convert a $200 tax return into $2,500 of fees. Yipee! That’s a 1150% boost in revenue. No self interest at all though, it’s purely about the client’s best interests, cough, cough, and look at my glossy financial services guide, I am a licensed financial planner, never mind the fineprint which effectively limits my entire list of products I can recommend to ONE SINGLE PRODUCT – An SMSF. AOIFP is right. Where is Peter Kell on this issue, and why didn’t the Royal Commission investigate the industry funds, who use financial planners as a customer retention sales force? Personally I don’t mind the idea of commissions being phased out, but lets have some balance. There are far bigger problems.
Investment decisions being made by trustees may be the rule, but it is far from the fact in practice. Most investment decisions are made on the (unlicensed and undocumented) advice of the accountant who set up and administers the fund. And where an SMSF has multiple members/trustees, it is usually only one of them who has any awareness of what’s going on.