The Association of Financial Advisers has reinforced the importance of advisers providing service to all grandfathered commission clients in a submission to the Hayne royal commission.
In responding to questions raised at the end of the fifth round of hearings on superannuation, AFA chief executive Philip Kewin acknowledged the scrutiny grandfathered commissions have come under as a result of the royal commission and wasn’t expecting much support on the issue.
He proposed the introduction of an annual reporting obligation for licensees to report the percentage of practice income that is from grandfathered commissions.
“In our view, the transparency of this measure, along with a set of actions by government to enable clients in uncompetitive products to move to modern products, including the removal of exit fees, CGT rollover relief and Centrelink deeming relief will assist to speed up the move of clients to modern products,” Mr Kewin said.
“Where there is no need or benefit from moving, then they should not be forced to move.”
Mr Kewin said any commissions and/or fees are fully disclosed to clients in the statement of advice (SOA) and the clients need to agree to proceed and the business needs to be implemented before any commission payment is made.
He added that any questions about a conflict of interest that this creates do not take into account that, under the Life Insurance Framework, all insurers are paying initial commission at roughly the same rate and it is capped.
“As such, commission is not a driver that encourages a financial adviser to select one product over another, it is a mechanism by which many clients gain access to valuable advice who would otherwise not have this opportunity.”
Further, Mr Kewin noted that advisers are also bound by the best interests duty and related obligations, and the advice needs to place the client in a better position as a result.
“Any consideration of what this commission payment represents, needs to consider the extensive work that goes into the provision of life insurance advice, including the needs analysis, strategy design, product consideration, SOA production and presentation, underwriting and implementation,” Mr Kewin said.
“Importantly, these commissions include the servicing payments that cover a financial adviser to provide claims payment services when life insurance really demonstrates what it is for.”
Adrian Flores is a deputy editor at Momentum Media, focusing mainly on banking, wealth management and financial services. He has also written for Public Accountant, Accountants Daily and The CEO Magazine.
You can contact him on [email protected].
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