AMP reminds Hayne of Labor promises on adviser commissions
The troubled wealth and financial planning giant says some of commissioner Hayne’s comments about grandfathered commissions could be factually incorrect.
In its response to the royal commission interim report, AMP goes as far back as the introduction of the FoFA reforms in 2011 to illustrate its position on adviser commissions.
“In order to secure passage of the legislation, the then assistant treasurer and minister for financial services and superannuation – the Hon Bill Shorten MP – gave a number of commitments to advisers, one of which related to grandfathered commissions. These commitments were set out in detail in the minister’s press release dated 29 August 2011,” AMP’s largest submission states.
The 2011 comments from Bill Shorten read:
"Following legal advice from the Australian Government Solicitor, the government has determined that the ban on conflicted remuneration (including the ban on commissions) will not apply to existing contractual rights of an adviser to receive ongoing product commissions. This means, that in relation to trail commissions on individual products or accounts, any existing contract where the adviser has a right to receive a trail commission will continue after 1 July 2012, or in the case of certain risk insurance policies in superannuation, 1 July 2013. This means that trail commission will continue to be paid in these circumstances."
AMP notes that the passage of the FoFA legislation was “highly contentious” seven years ago and doubts whether the reforms would have passed through Parliament if the minister had not provided these assurances to advisers.
“In light of the above, it is arguable whether the statement included in the Commission’s report on page 97 that ‘the grandfathering arrangements were temporary and exceptional measures’ is factually accurate,” AMP said.
“It is also important to recognise that both ASIC and Treasury noted there may be constitutional issues associated with banning grandfathered commissions.
“In short, there is considerable history and previous commitments given by ministers to advisers that make the issue of removing grandfathered commissions problematic.
“Transitioning away from grandfathered commissions is not easy; it needs careful consideration before decisions are taken. It is for that reason that AMP has taken a cautious approach to the issue of ceasing grandfathered commissions.”
AMP outlined its position on the matter, agreeing with Treasury and ASIC that there may be constitutional issues associated with banning grandfathered commissions.
The group noted we that legislative measures to remove grandfathered commissions “risk extinguishing the property rights of existing contracts and accordingly that AMP does not support legislative measures of this nature”.
However, AMP ceded that in light of community sentiment surrounding grandfathered commissions, AMP supports transition away from grandfathered commissions in a manner and timeframe agreed with the industry together with appropriate legislative reform.
The conditions of AMP’s agreement to remove grandfathered commissions include government and regulatory facilitation for scoped advice (for example the ability to be able to provide a record of advice rather than a statement of advice).
AMP has also demanded government support for the removal of impediments to the transition for members, such as capital gains tax relief.
“Such legislative measures would aid in the transition to contemporary products without grandfathered commissions, if it is in members’ best interests to do so,” the group said.
“A reasonable transition period is required to provide sufficient time for industry participants to implement required changes, including to business models, systems, disclosure documents, advice and communications to members, to minimise unintended consequences for customers, financial advisers and the community in general.”
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