The AFA has told the royal commission that a ban on conflicted remuneration currently covered by FOFA’s grandfathering provisions would not be in the public interest, unlike the FPA and ASIC.
Last week, the royal commission released submissions from both ASIC and the FPA arguing that grandfathered conflicted remuneration is problematic and should be phased out.
ASIC said the practice should be ended “as soon as reasonably practical”, while the professional association offered a “three-year transition period” recommendation.
In stark contrast, the AFA’s submission rejects the notion that grandfathered commissions are a cause of misconduct.
“We do not believe that the continuation of grandfathering has a cultural influence on the issue that has been addressed by the royal commission with fees for no service,” the AFA submission stated.
“We do not believe that there are grounds to cease grandfathered commissions, although we note that more can be done to ensure that these clients are being serviced.
“Removal of trail commissions through a regulatory means would be a very complex matter and is most unlikely to directly benefit the client in any way.”
The submission goes on to list a number of cases where it may be disadvantageous for the client to “move from a trail commission paying legacy product to a new post-FOFA product”, such as where an exit fee exists on the product or where there may be capital gains or Centrelink implications.
Instead, the AFA recommends that licensees monitor their advisers to ensure that any advice relating to grandfathered products is in the best interests of clients.
A full list of the submissions made to the royal commission can be read here: https://www.ifa.com.au/news/25505-royal-commission-round-two-responses-released
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