In a statement, AFA chief executive Philip Kewin said attempting to turn off grandfathered commissions in such a short time frame will only serve to benefit institutions who will be able to hold onto them, with no compulsion to pass any benefit on to consumers.
He argued that many clients currently receiving advice services for these payments will lose access to them, without any reduction in their fees.
“If the concern is that some advisers are receiving grandfathered commissions without providing a service, then there are other options to address this issue, without negatively impacting those clients who are in grandfathered commission paying products and are happily receiving services and advice from their financial adviser,” Mr Kewin said.
The argument that grandfathered commissions have continued for too long is not reflected in the facts, Mr Kewin said.
He pointed out that there were zero cases of inappropriate financial advice as a result of grandfathered commissions during the Hayne commission hearings, as well as research by Investment Trends indicating that grandfathered commissions have declined from over 30 per cent of advice practice income in 2010 to just nine per cent in 2018.
“At no stage have the objectives and potential consequences been discussed or debated. Both Treasury and ASIC have confirmed that they have not done any research or investigation to confirm the current level of grandfathered commissions or the implications of seeking to remove it,” Mr Kewin said.
“Achieving the right outcome for clients is a much more complex proposition than is appreciated by any of the proponents for a ban.”
Therefore, Mr Kewin argued that the proposed ban is simply an issue of political expediency, which numerous stakeholders have sought to use in order to leverage political, media and commercial benefit at the expense of small business and consumers.
He said this is neither fair nor acceptable as it jeopardises the livelihoods of professional, hard-working financial advisers.
“The potential financial and emotional impact on these people is profound. Forcing a transition sooner than practical also jeopardises the ability for clients to remain in an advice relationship,” said Mr Kewin.
“This is unnecessary, especially given that there are avenues for a sensible transition available to the government and opposition to consider, should they choose to work with the industry.”
According to Mr Kewin, small advice practice owners have acquired businesses in recent years that include grandfathered commission clients and have taken out loans to fund these acquisitions on the basis of prevailing valuation methods.
He said these small business owners had no expectation that grandfathered commission arrangements would come to a sudden end.
“The proposal to ban grandfathered commissions in such a short time frame will put them and their businesses at genuine risk,” Mr Kewin said.
“Who has done the work to understand the consequences of this decision? What level of borrowings are based upon these valuations and how many financial advice businesses will be put at risk of foreclosure?”
Lastly, Mr Kewin provided a reminder that when Labor introduced the Future of Financial Advice (FoFA) legislation into Parliament in 2011, the current Leader of the Opposition, Bill Shorten, who was the relevant minister at the time, stated in a media release dated 29 August 2011 that based upon advice from the Australian Government Solicitor, the FoFA ban on trail commissions would not apply to existing investment and superannuation business.
“We also respectfully remind the ALP that when they introduced the legislation and grandfathered existing trail commissions on existing business, they did not suggest that it was a transitional arrangement or that they expected it to disappear within a limited time frame,” he said.
It’s too little too late AFA, FPA. Now you want to look like you have done something after the fact. Obsolete organisations IMO
Leave grandfathered commissions and simply make them Opt In.
All ongoing investment / Super income should have been Opted in with FOFA anyhow.
If the advisers doesn’t do any work or it’s not worth servicing, then it’s not opted in and it stops.
[b]But for bloody sake don’t simply let the BIG INSTITUTIONS pocket it and the consumer and advisers get shafted !!!!!!!!!![/b]
Well said Philip Kewin and yes they are totally uninformed on the firms that do look after these clients. Its when it has gone back to the institutions that there has been NO SERVICE. Bill Shorten said it was in the Constitution not to deprive somebody of an income that they were receiving. Keep up the good work AFA and FPA please grab some balls and represent your members not the government you spinless twats.
we need both [b]T[/b]im [b]M[/b]ackay and [b]T[/b]erry [b]M[/b]cMaster’s opinion on this.
Mortgage Brokers are fine thanks very much to their powerful lobby, I think I will just switch to becoming a mortgage broker, better money less hassle. 1.1% on loan, that is more than I can make as a financial planner. This is a $%%$$% JOKE
Mortgage brokers are also able to sell insurances to protect the bank loan in the event of death, disability or trauma to the client WITHOUT A FASEA EDCUATION, without any SOA or BID and get paid a commission to sell it. What a joke the regulators are.
not that easy now. you will have to be supervised for 2 years before you can write a loan by yourself.
i think a deckhand on manly ferries gets paid more than an FP these days.
could not agree more. no point being a adviser. asic attack us or any other small player. our industry bodies do nothing,
At long last, an industry body has spoken out about this issue and the serious repercussions it will have on financial planning practices !!
Too late. They should have gone after these idiot politicians straight away just like the mortgage broker association has done. Where is the FPA? Too conflicted to serve its members that’s where they are.
too worried about selling courses
Even the AFA, who must know better, confuse the argument by using the misleading term “grandfathered commissions” without explaining these commissions relate only to super and ordinary investment products, not risk policies. That allows careless, and malevolent, journalists AND politicians to CONFLATE the argument to include RISK TRAILING COMMISSIONS. That’s a matter for 2021, not now in a pre-election hysteria environment. LETS HAVE PRECISIONAND FOCUS PLEASE !!!
And still the dinosaurs shriek with rage. The discussion is over. The annihilation is underway. Commissions are dead. Get over it. A Micky-Mouse qualification no longer cuts it. Get over it. The AFA and FPA have essentially been cut out of the game. Education, discipline and compensation will all be run by external Government bodies. Your voice in this space via these organisations carries no real cred in Canberra and in the public domain. Get over it. If you can’t stomach the new world where you really have to behave and act like a professional Doctor, Lawyer or Engineer in your fiduciary responsibilities to your clients ? Then get out of it. The financial advice profession of the future ? Well it aint for you.
you sound like Brad Fox when he sold us out in the LIF debacle. Went to a recent event where he was a paid speaker…… his main message was all about going with the times, focus on your controlables and not what you can’t control. Basically explained his whole thought process with capitulating to the FSC and the whole LIF screw over!!! Try negotiating like the Chinese who are the masters at this, always demand more than you want so you have something to give away so you then end up where you want to be.
You need to provide your address ” Big Trev ” as there a few of us who would like to come around to have a discussion with you….it shouldn’t take long to get our point across.
what, like those professional lawyers who will take 30% – 40% of an insurance claim for the privilege of completing a few forms that could be done by an adviser under their existing service package or for a small flat fee? Even if I charged a flat fee of $5,000 for claims management, it’s a significant saving for a client who could be paying $300K – $400K on a TPD claim to some ambulance chasing lawyer.
BIG TREV, BIG DILL !!!
Come on AFA. Just move with the times.
Good that someone from the financial planning body has some say, however the AFA and FPA should do themselves a favor and have a look how the MFAA and mortgage aggregators have banded together. They have provided a clear consistent message. The AFA and FPA are a dogs breakfast in comparison and do not achieve outcomes.
So, if it is only 9% of the revenue and getting less, then it would not have such a big impact? Not sure if the AFA thought that statement through.
And this is 2019, not 2011, I think BID was expected to see a large movement of funds from Grandfathered products to new products over time. Sadly many advisers (not all) chose to ignore BID and this is why we are now in this position.
They have had 5.5 years since FOFA to wash it out of the system and it hasn’t been done. The same arguments came up back in 2012 – time to accept it and move on. They had the chance to change their business model away from trails and have sat on their hands – again. No wonder the RC and political parties want to step in as the industry can’t self-regulate.
Wouldnt moving clients from an Allocated Pension with built-in comms to an Allocated Pension with an explicit fee trigger a recalculation of the clients Centrelink entitlements? If it disadvantages the client is that really in their best interest? What about clients in annuities where you cant switch out of the product? What about CGT issues on clients in investment accounts? Do we trigger massive capital gains for the client just so that we can say that we no longer receive commissions? Who benefits in any of these circumstances? Certainly not the client….
Can’t we rebate the commission and charge a fee for service? Wouldn’t that solve the problem and make it better for the client?
Rodney, it is still cheaper from the clients perspective that a commission be paid rather than the same amount in fee. It is that simple.
They should of been ended years ago.
…should have…
should of.. could of.. would of.. I’m sick of people like you preaching about your righteousness.. you strike me a the first person clamoring to attend a junket conference like all of your industry fund mates..
there are a lot of dead weights in this industry correcting other people’s grammar on this forum. they must be twiddling their thumbs getting paid by their employer to sit around and do nothing.
Well said Phil Kewin from the AFA. I note the FPA remain as usual silent and inept. Not sure why membership fees are being paid to the FPA really. Anyway. every adviser is impacted by this issue. Even if you believe in a holier than thou world, the fact remains that if you allow government of any persuasion to get away with a ban on grandfathered anything, you open a can of worms on a larger scale. For example, in 1993, the idea of removing favoured tax treatment on leave prior to August 1978 was canned due to the impact this would cause many workers.
More recently, grandfathering is okay for those with negative geared property said labor and Shorten due to the impact this would have on a larger scale to the economy. Changes then to be made on a going forward basis. Common sense should and has prevasiled here as above.
Our industry should not tolerate a destuctive set of words as is the issue of grandfathered anything, yet we silently or naively allow this to occur to our detriment and the consumer at large.
If government gets away with this nonsense of switching of trail commission, then the impact is large to those caught in this nonsense and clients. How will a client pay for a service. Upfront or with an opt in for ALL clients.
The client should have a say also. I recall though that when it came to paying a mere $6 to see a doctor, many chose to not do so.
Yet those pushing a one size fits all idea beleiving in a utopic solution, either have not thought about matters to deeply, have no facts to back up their comments, have no understanding of how a supply chain works in a practical sense and need to not make absurd comments with little to no basis as this can have devastaing impacts to not just advisers their business and staff but to those that matter most. The consumer.
Ending grandfathered commissions has zero impact on me however, I can see how this could affect some clients negatively. If they receive ongoing service paid for by the grandfathered commissions and the product providers don’t reduce fees inline with their reduced cost (not paying planners the grandfathered commissions) then it’s the clients and planners that lose out and the product providers reaping the benefit. Why not simply require an initial audit and have planners receiving grandfathered commissions provide an FDS each year like ongoing service??
Exactly David.
There are many clients in grandfathered commission products who are receiving advice and service from their adviser.
As it may well be to the clients disadvantage to change or alter their current product based on several important factors, the issuing of an FDS provides clarity to the client as to what their adviser is receiving and the service and advice provided.
The knee-jerk reaction and perception that all these clients don’t receive contact or advice is incorrect.
If it is in the clients best interest to remain within a grandfathered product and the client is made fully aware of the adviser remuneration and receives contact, service and advice, then it is appropriate.
If a client is forced to have have to move to an alternative product and it is to their disadvantage, then this is entirely inappropriate.
Receiving a commission for providing a service is not wrong and if the clients costs remain competitive or cheaper than the alternative that is acceptable.
Instead of removing these competitive adviser payments altogether, simply include the need for FDS and Opt In for these also.
Over time, these clients will transition away from these products as their needs change and eventually there will be no-one left in these products.
Good on the AFA and Mr Kewin for stating the facts and trying to save small business’.
what do the FPA have to say about this attempted travesty of justice. ( the sound of crickets in the background) What about standing up for your members!!!
its usually how labor snipe Liberals with ‘looking after the big end of town’. Aw man,.. Advisers and the associations need to let it go. Commissions were money for jam for many years. The Libs gave you 5 years plus to get used to it, now your worried the transition is going to be hard! Does this guy really comment with a straight face. Talk about flogging a dead horse. Listen carefully Mr Kewin, It will never become a respected professional until they are gone. simples.. And your comment that people getting advice based on commissions is laughable. Industry standard says no review is required where only commissions are received. Some Dealers might have the obligation to ‘offer a review’ but if you show me anyone any Licensee who compels their ARs to give free advice, ill eat my hat!
So tell me ‘Dead Horse’…
Firstly, so you don’t rate me as a professional after the 12-odd years I’ve put into this industry and my business because I earn an initial commission payment from an insurance company for placing my clients business with them and an ongoing servicing fee to look after that same client’s needs from then on – which includes the claims process for no additional charge??
I take that comment as an unsubstantiated attack on my character.
Secondly, so you’re telling me as Risk Insurance Adviser only, that I should stop receiving these payments from insurance companies (which is now capped across the industry) and charge my client a fee for service instead?
If that’s true, how do you expect to me to charge a client for the time working through a Fact Find document, the SOA that comes from that and the application form process when 30% of clients these days aren’t able to actually get the cover they want and are declined?
What happens when a client has probably spent somewhere between $2000 and $3000 and they don’t get the cover they wanted and paid for? This fact alone destroys your argument for fee for service.
Thirdly, how would you sleep at night after sliding an invoice across the table to a grieving widow who has just lost her husband, for the assistance required working through the claims process?
In my time in this industry, not once have I had the audacity or cheek to invoice a client for any claims management help I’ve provided them working through the claims process – because the ongoing servicing fee covers that.
It also covers the reviews, the admin work, the policy updates and all the other work that goes into looking after a client. You might be surprised to learn that there are many advisers out there that do provide service.
I empathise with your offence taken with the original comment, but we need to be completely honest with ourselves and the state of the industry before we go and virtue signal about not charging for claims etc.
Firstly, the original comment talked about the view of the industry as a profession. That isn’t a personal attack on you, it’s an attack on the industry itself and how it functions. It’s clear that there are a large cohort of people who don’t accept our industry as being a profession whilst commissions exist. People are free to have their own opinions on that matter but ultimately the question really is – why does being a ‘profession’ matter? It’s a label that doesn’t change anything you do day to day, so why care what those who aren’t your clients think about the state of the industry.
The reality is Advisers essentially run a group insurance model. Everyone pays higher premiums so that Advisers can collect their commission and fund their business. The grieving widow and her recently deceased husband paid a premium on their insurance premiums every year so that they could access the services of a financial adviser that would help them at claim time. So did 9 other people who haven’t claimed, so that you could afford to service the grieving widow.
Another Adviser can charge fee for service, dial down commissions and collect a fee-for-service so that all their clients are paying less with every insurance premium paid, and then need to charge fees to assist those who need it at claim time is a different model with a different outcome to yours.
It’s not audacious. It’s not cheeky. It’s a different model and we need to stop being so judgemental on both sides of the fence as to how others do it. People who charge fee for service or they collect commissions all get paid somewhere along the line and it all ends up coming from the clients pocket somewhere.
Explain Intra fund advice then? Then ban commissions? I get what you are trying to say but there is a reason the system works now and the insurance companies are still making billions every year in profits. Commission have reduced already and I have not seen one premium go down not one… In fact I have seen most companies increase premiums out of step of CPI of 15-20% I’m happy to do hour consultations but we need to move to a system like accountants no SOA paperwork no working papers no consumer protections everything goes back onto the client etc just like they do with doctors and lawyers if and only then would I be happy to go completely charge by the hour
Dead Horse.. of course you are right. We will have great outcome for consumers when they have to deal with the call centre and trying to get their claim paid through their CRAP industry fund..
Lol oh yeah the thousands of clients in grandfathered fee/commission products who havent heard from their adviser in years will be much worse off…Give me a spell.
If these clients are getting serviced and value added they will sign an annual agreement to continue the service for a fee.
I totally agree with you – but apparantly that will NOT be enough !!!
What a joke!! Wasted my whole life to build a business which is worth nothing!!
You need to seek compensation from the government.
like $50k for the taxi’s.. yeah right
The AFA should look to the MFAA when it comes to campaigning
the mortgage broker lobby has just come out unequivocally stating hayne [b]got it wrong.
[/b] and that they reject hayne’s recommendations totally.
they have shown what effective lobbying is all about.
Talking to pollies with no public support is just wasting time. You get the public back on side FIRST exactly how the MFAA did it…..its not rocket science. I said lets all put in $200 for a full page ad somewhere….crickets crickets… its just gutless. We deserve what we get as we dont stand up to be counted. Its not us advisers fault, we are out there all the time speaking to people, our clients are happy. Its the associations that are supposed to speak on our behalf, they are useless, they don’t know how the world works these days. Oh lets go to see Cory, well why? He is already on side. Spend that travel money on ads! Radio, TV, Papers, whatever. They have to get out of their comfort zones, stop agreeing and grow a set of nuts pardon the pun.
There is a simple solution to this. Pre empt this, turn OFF the trail and add an adviser service fee. If it is true that you are “servicing” these clients there will be no issue or drop in revenue and clients will be happy.
I did go to the connect roadshow for the AFA and they are so far out of step it is not funny. Phil Anderson just complained that he spoke to government numerous times over the year and they didn’t take any of his views on board or change to suit his opinion. Sounded like a total sook whose mates wouldn’t play with him in the school playground.
Maybe his approach was non conciliatory or too aggressive or maybe his views don’t align with modern world
more like not enough aggression