CFS accused of withholding commissions
A Perth-based financial advice firm is currently locked in a dispute with Colonial First State over a client commission, claiming a missuse of the FOFA grandfathering provisions.
An email from a Perth-based CFS business development associate, seen by ifa, explains that the case in question has been determined a “commission free account” as it is considered a “new arrangement” under the FOFA legislation and will “therefore not satisfy the conditions of the accounts to be grandfathered”.
The CFS BDA directed the complainant to the CFS Regulatory Reform website, which explains that FOFA’s “ban on conflicted remuneration applies to benefits given to a licensee or a representative under new arrangements entered into from 1 July 2013” and that “arrangements entered into prior to 1 July 2013 are grandfathered under regulations released in June 2013”.
Having reviewed the CFS regulatory guidance documents, the advice firm director told ifa that their firm has an “existing arrangement in place with Colonial First State” under the dealer terms of trade as at 2012 that did not address “adviser movement”.
The practice principal added that CFS has been “unable to provide reporting to the client to substantiate the reduced administration fee charged on the client account to evidence the trailing commission was in fact rebated back to the account”, describing the perceived lack of transparency as a “outrageous”.
”The big institutions can just drop the commissions and they don’t have to substantiate where they have given it back to the client,” the principal said.
“The client is meant to be better off, not the institutions. This situation however is that CFS has just pocketed the commission. We are aware of the implications of the FOFA reforms however the finer details still remain unclear. Unless the changes are very clearly spelt out in the legislation, the door will be open for this practice to continue which will be very bad for all small practices as well as clients. Customers and small business owners will be even more at the mercy of the big institutions.”
More broadly, the source called for greater accountability measures for financial product providers, warning that this incident may set a precedent for product manufacturer-adviser relations.
“At the end of the day they are a law unto themselves with no regard to existing contracts and working on the premise that we are not in a position of any power,” the principal said. “We need to make them accountable; they should have to explain where this money is gone.”
A CFS spokesperson told ifa that the company is “aware of the complaint and is currently managing the issue”.
“We are committed to ensuring advisers are paid appropriately in accordance with CFS disclosure documents, our arrangements with relevant dealer groups subject to the FOFA legislation and any grandfathering restrictions,” the spokesperson said.
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