The Australian government announced this week that it will introduce legislation on Thursday to ban the grandfathering of conflicted remuneration paid to financial advisers.
The Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019 will mandate grandfathered commissions are expelled by 1 January 2021.
AIOFP executive director Peter Johnston told ifa that if the government were serious about grandfathered revenue and assisting consumers, they would have legislated that the institutions give 100 per cent of the revenue back to investors.
“The institutional lobby have spun the notion that this revenue is sourced from client accounts. It is not,” Mr Johnston said.
“This revenue comes out of the institutions’ fee they charge clients and advisers have been using it to subsidise advice costs to clients.
“The very likely outcome will be the institutions will keep most of the revenue citing ‘recovery costs’, consumers will see little benefit and advisers will now have to charge clients more for ongoing services.”
In a recent episode of The ifa Podcast, MLC general manager of distribution Geoff Rogers explained that the move from commissions to fees will force many advisers to move “up market” and service wealthier clients.
“If you’re using a fee for advice and that advice fee might be averaging $5,000 or $6,000 a year, you’ll generally find that you will end up with a segment who can afford it,” he said.
Following the release of the royal commission final report, which recommended that grandfathered commissions be banned, the AIOFP launched the Advice Regulation Challenge (ARC) strategy.
Funded by advisers, the ARC strategy will challenge the government’s decision to ban grandfathered commissions in the High Court, arguing that the decision is unconstitutional.
Mr Johnston explained that in 2011, then financial services minister Bill Shorten advised Parliament that they could not cancel commercial contracts under the Constitution unless it was on just terms.
“The Constitution has not changed since 2011 and we believe that is still the case. We are going to challenge this legislation in the High Court and if the same result occurs, the government would have wasted over $3 million of tax payers money on legal fees,” he said.
While some advisers support the government’s decision to ban grandfathered revenue, others rely heavily on the income stream to support their businesses and continue serving clients.
Mr Johnston said those advisers who don’t agree with grandfathered revenue should be more considerate to those who do.
“The ARC strategy is all about making a statement to politicians and ASIC that the advice community is very tired of being unfairly targeted and we are a united group,” he said.
Never before has one organisation done so much to destroy the reputation of financial advisers. The Association of Ongoing Investment Flawed Payments is a national disgrace. They couldn’t challenge a parking ticket let alone launch a High Court Chalenge. I don’t think too many will fall for the ARC nonsense. If that money ever gets used to mount a challenge I’ll run naked down Bourke St
there is worse isn’t there? Why aren’t we also taking a stand on govt or regulators taking away our ability to engage our clients in a manner that they/the market want? If a client wants to agree to a 3 yearly review cycle then as long as that is documented, transparent and delivered upon why can’t that happen? We need our associations to be pushing back on these ill conceived and misguided ideologies from ASIC and elsewhere – they are blatant intrusion into what should be a free market…it simply stifles innovation and the industries ability to move where the market wants to go. If ASIC as the industry copper wants us to only cross at the lights then fine, but don’t tell us we have to skip when we do!
Thank the Good Lord for the AIOFP and Peter! Keeping the bastards honest has never meant so much for our industry. How dare they try to enact such legislation in a free market economy like Australia. They should be ashamed, especially when there are ZERO beneficiaries to this madness except for the elite who run the investment companies. Disgusting on all levels of commonsense and legality. They should be abjectly ashamed of themselves and their cohorts in parliament that enable this thievery – no other word for it! ( . . . and we pay the wages and super benefits for these clueless creatures in Canberra – insult to injury!)
Ban them. if your business needs subsidising to remain profitable you shouldn’t be in business.
Fear not, consumers!
Unlicensed accountants have managed to create a black market for financial advice. They don’t need to charge you $5,000 plus or need to recoup that via commissions. It’s quick and easy via incidental consultations.
All they ask is you sign a disclaimer that they stuck to their various exemptions (facts, tax advice etc).
It would have been beneficial to have waited till after the high court challenge to legislate the ban. If the AIOFP wins the legislation would then have to be repealed.
I cant believe how quiet we are as an industry compared to mortgage brokers…
Our business employs 2 full time admin staff who’s only role is to service the daily requirements/updates/changes to grandfathered commission clients. Our business has borrowed heavily to purchase 1,000’s of these clients over the last 5 years.
Now we will be letting both of these lovely ladies go because all these daily inquires will be met with a redirection back to the product manufacturer. I can just see the product areas saying we need to now keep that fee to cover the cost of the people we now need to put on to service the increased inquiries.
Crazy situation.
To Peter and the AIOFP: grandfathered commissions are gone and they’re not coming back – build a bridge and get over it.