The AIOFP has defended conflicted remuneration currently subject to FOFA’s grandfathering commissions, telling royal commissioner Kenneth Hayne that its removal would just aid the big end of town.
In a letter to commissioner Hayne, seen by ifa, AIOFP executive director Peter Johnston warns against the proposal offered by ASIC and the FPA to end grandfathered commission payments despite their current protection under the Future of Financial Advice legislation.
While conceding that grandfathered revenue is “not a perfect scenario”, the letter informs Mr Hayne that that a recommendation to ban it would not alleviate conflicts identified in the royal commission relating to vertically integrated wealth management businesses and SMSF specialists.
“It would be totally unfair and blatant discrimination to take away this revenue stream from independently-owned practices when institutions and SMSF advisers can cross-subsidise advice with their activities,” the latter stated.
“Vertical integration allows institutions to cross-subsidise their aligned advisers operating costs, which inexplicably is permissible under FOFA. SMSF advisers can operate in a similar fashion to product manufacturers by offering their own administration services and then deal in direct property outside of ASIC jurisdiction to cross-subsidise their practice expenses.”
The letter says the AIOFP endorses the work of the royal commission in shining a light on these conflicts of interest.
It also suggests that in some cases grandfathered revenue may be in the best interests of consumers and therefore in line with the spirit of FOFA, particularly in cases where clients are invested in legacy financial products.
“Consequently, a blanket approach to this issue will not work,” the letter stated.
“The AIOFP recommends that grandfathered revenue should remain in place, FOFA’s best interests duty should be allowed to do what it is designed to do: ensure that advisers are selecting the best strategy for their clients’ specific circumstances and if they don’t, they face the legal consequences.”
The AFA has also argued against the removal of grandfathered revenue.
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