Grandfathering ban is unconstitutional, argues AFA

The Association of Financial Advisers suggests that any government moves to legislate a ban on grandfathered commissions may lead to a constitutional issue.

In a statement, AFA general manager for policy and professionalism Phil Anderson pointed to what commissioner Kenneth Hayne said on page 18 of the royal commission final report, where he didn’t believe there was any basis in arguing that there is a constitutional issue in banning grandfathered commissions.

However, he said there is clearly evidence to suggest that other legal minds have a different view. He referenced a media release regarding the Future of Financial Advice (FoFA) reforms from 29 August 2011, when then minister for financial services and superannuation Bill Shorten said:

“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.”


Mr Anderson said the FoFA legislation is littered with references to paragraph 51 of the constitution and the issue with the acquisition of property rights on other than just terms, citing sections 1528, 1530 and 1531 of the Corporations Act as examples. 

“As further proof that this is still considered to be a relevant issue, this reference to paragraph 51 of the constitution was included three times in the Centre Alliance Party’s recently proposed amendments that were seeking to ban grandfathered commissions from 1 July 2020,” Mr Anderson said.

“There is clearly evidence to suggest that the banning of grandfathered commissions would create a constitutional issue, yet despite all the direct evidence that we provided in our interim report submission, the commissioner still proceeded in the final report to simply deny that it is an issue.”

Further, Mr Anderson said that, on 22 February, Treasury issued for consultation draft legislation on banning grandfathered commissions, and he found the inclusion of four new subsections stating that section 1350 would not apply in particular cases interesting.

Section 1350 states that compensation needs to be paid where property is acquired on other than just terms.

“It does seem remarkable that Treasury is proposing legislation that would seek to remove constitutional rights from financial advisers,” Mr Anderson said.

“The fact that within the course of two weeks, the Centre Alliance, Labor and Treasury have all brought forward different versions of proposed legislation to deal with grandfathered commissions highlights the extent to which this issue is entirely out of proportion with reality and the available evidence.

“The political momentum behind an issue that ASIC cannot provide guidance on the extent of and the evidence does not demonstrate any client detriment, is truly illustrative of a hunt for scapegoats and quick wins. We can only ponder as to why this has not been subject to appropriate scrutiny.”

Grandfathering ban is unconstitutional, argues AFA
Philip Anderson
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Adrian Flores

Adrian Flores

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 adria[email protected].

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