An industry association plans on taking legal action against the federal government’s decision to ban grandfathered commissions.
The AIOFP has written to its members today warning that the proposed changes to ban grandfathered commissions may not be constitutionally valid.
“Previously, as part of the Future of Financial Advice (FOFA) debate, consideration was given to banning commission structures,” the AIOFP statement said.
The association noted that Opposition Leader Bill Shorten, in his capacity as then assistant treasurer and minister for financial services, noted in the Corporations Amendment (Future of Financial Advice) Bill 2011 Explanatory Memorandum that “the proposal to ban particular remuneration structures can only operate prospectively, due to constitutional restrictions concerning acquisition of property”.
“Since 2011, the constitutional restrictions on the acquisition of property (other than on just terms) have not changed. Further, the FOFA reforms explicitly preserved pre-existing remuneration structures,” the AIOFP said.
The AIOFP is taking legal advice in relation to a potential challenge to the validity of proposed amendments to remuneration structures without any compensation to members, given what it has labelled the “radical change” in the Commonwealth’s position and its stated legislative intention.
The association, which represents members of the non-aligned financial advice community, estimates the cost of challenging the government in the High Court of Australia will be between $1 million and $1.5 million.
AIOFP executive director Peter Johnston said the action will send a clear message to Canberra that the advice community is prepared to fight against injustice.
“We have had enough of politicians either not bothering to understand the nuances of our industry or considering financial advisers as easy low hanging fruit to exploit for political opportunism,” he said.
“At the moment, both sides are feverishly and blindly rushing to legislate against grandfathering without realising it will only give higher profits to institutions, financially disadvantage consumers and crush small business.”
Mr Johnston believes institutional-aligned lobbyists have cleverly “spun grandfathered revenue into a fictitious story”, one where the money is sourced directly from consumers and should be returned to them.
“This is yet again another attempt by the institutional lobby to starve advisers out of the industry,” he said.
“This time they have gone too far, the advice community are prepared to aggregate their resources to fight them in the trenches if we have to.”
Mr Johnston confirmed that the association appointed an international law firm and constitutional QC to manage the process.
It is understood that about 50 per cent of AIOFP members are wholly reliant on grandfathered commissions.
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