The self-licensed boutique’s principal told ifa, on condition of anonymity, that a new client was recently acquired from another licensee and advised to stay in its current Colonial First State (CFS) fund, but that the CBA-owned fund manager has “refused to continue paying ongoing commissions” on the grounds that the products were closed to new investors in 2012 and do not provide client rebate features.
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.
Apart from tax issues, why wouldn’t this client be moved to a CFS Wholesale product that pays no commission. It would be cheaper for the client wouldn’t it? If it’s an insurance issue then the insurance would be platform insurance and could be transferred to the new CFS product. Me thinks there is more to this story than what has been reported.
As an industry we have had product providers plugged into our businesses like an intravenous drug. Its time to disconnect them. Take back control of your businesses by addressing your fees with the people who should be paying them, your clients. Product should not be involved in any way and it avoids the problems mentioned in the article in the future. If you allow product providers to be the gateway between your clients and your revenue you are asking for trouble. Watch the banks and insurance companies change their tune when you take back control, as a business owner its your business, not theirs.
This just proves that we need urgent action by the Government to amend and/or clarify certain aspects of FOFA. Otherwise there will be a massive transfer of wealth from self-employed financial planners to the big banks, and clients will be left out in the cold.
What a joke. Just so long as CFS understands that it cuts both ways. Best way around this is to use SMSF’s and take back control. Sure you may still need to use fundies, but at least you won’t need to use platforms. These guys couldn’t give a toss about planners.
[quote name=”Ian”]not a happy situation for the adviser – and a pretty poor effort by CFS all round –
must confess that has been my experience too.
Happy to keep the inbuilt fees – but equally really slack at making sure the might thing is done by the adviser.
incidentally – there are better options for the client now – and a roll out would be the best solution – not only of this client – but all the CFS tagged clients -[/quote]
It might be the better thing for the client, but what if the client has insurance attached to the policy, and due to change in circumstances, he can’t get insurance again. Again, the only winners here are the big organisation who scream murder when FOFA reforms hurt them, but turn a blind eye when they hurt us.
Dear All ADVISERS (ZOMBIE ADVISERS)
Perhaps you haven’t woken up from your coma’s yet but are just starting to recognize the full implications of this but let me spell it out for you.
1. You cant sell your clients and get paid for them, because of the grand fathering rules.
2. The Insurance companies and Banks don’t care about you, your lively hood, your futures or your ability to get paid the good will for your business. (they would be kicking up a stink if they really knew about the implications of this)
3. The big branded Licensees don’t care either. They are asleep at the wheel.
4. When mysuper comes into in 2017 ALL trail commission on all super products will cease (if you have not done any work on them).
5. Many advisers are going to get burnt particularly if they have been buying client books. You have only 3 years of recurring revenue left.
WAKE UP! Its all over
Anyone else care to guess why the major banks and investment houses were so quick to embrace FoFA?
Platform volume over-rides…another curly one. That won’t get passed back to anyone either if you change licensees without checking the finer details. Another revenue raiser for the banks…thanks FoFA.
This is the biggest con I have seen in all my years as a financial planner, and CFS are not the only ones. How dare they tell us they cannot rebate the commission to the client. What a load of rubbish!
not a happy situation for the adviser – and a pretty poor effort by CFS all round –
must confess that has been my experience too.
Happy to keep the inbuilt fees – but equally really slack at making sure the might thing is done by the adviser.
incidentally – there are better options for the client now – and a roll out would be the best solution – not only of this client – but all the CFS tagged clients –
Surely an argument for the adviser “trading the client up” to a better featured, lower cost contemporary product and negotiating an appropriate fee for the advisory services (CGT and exit fee constraints- willing).Also another reason why the govt has to provide definitive guidance re grandfathering and FOFA amendments generally. There will no doubt be more of these issues until the final FOFA outcome drops.
Hi This is the response I received from CFS confirming they keep the commission:
ROSCO is an old CFS product and therefore has certain functionalities (or lack of) than that of FirstChoice one of them being the inability to rebate the trail back to the clients account.
Therefore the trail thats inbuilt into the MER is paid to CFS, as it cant be paid to the adviser due to it now being Commission Free.
We would breach FOFA legislation if we paid that commission to the adviser.
I had exactly the same thing happen with the same company when I submitted a change of adviser form for a client. The account became a ‘commission free’ account but no rebates to the client. The old adviser isn’t getting paid, the new adviser isn’t getting paid and the client isn’t getting the previously inbuilt fee rebated. An interesting interpretation of the law.