The Hayne commission final report recommended that grandfathering provisions for conflicted remuneration should be repealed.
In response, Treasurer Josh Frydenberg said the government has already released exposure draft legislation to ban grandfathering of conflicted remuneration paid to financial advisers from 1 January 2021.
It has also issued a ministerial direction, requiring that ASIC undertake an investigation to monitor and report on industry behaviour in the period 1 July 2019 to 1 January 2021.
“The regulations, released today, are designed to ensure that it is consumers, not industry, that benefit from the ban,” Mr Frydenberg said.
“Grandfathered conflicted remuneration can entrench consumers in older products even when newer, better and more affordable products are available on the market.
“In contrast, Labor proposed legislation to end the grandfathering of commissions, which was found to be defective in multiple respects. Their legislation contained loopholes that would allow grandfathered remuneration to be retained by product manufacturers and not be passed on for the benefit of consumers.”
Mr Frydenberg said the regulations will also impose obligations on financial product manufacturers to keep records on the amounts to be passed through to clients.
“These regulations mark another step forward as part of the government’s continued action on all 76 recommendations contained in the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry,” Mr Frydenberg said.
So if these commissions are needed to be removed for the clients best interests, should we also not have a look at some of the investment fees on these funds. Now there is the real gravy train. At least it’s possible that some clients benefit from the commission they pay. There are a lot of groups looking out for themselves and the ones getting screwed most are advisers.
I thought we lived in Australia a liberal democracy where property rights were protected and contracts entered in good faith were honoured. It’s a slippery slope
As somebody who is just lucky not to have any grandfathered commissions I have to applaud the FPA and AFA on their outstanding support of their members who do. The mortgage industry must be green with envy on how the un-conflicted FPA especially have risen to the task. I am someone who does rely on risk commissions and has dealt with mum and dad customers for 20 plus years with the same happy customers in EVERY case preferring commission over fees especially when days (sometimes weeks) of helping with claims have also been free for them.
I am so proud of the FPA and AFA. Lets just just look at their handling of FOFA, The LIF, FASEA, etc etc. Yes they may rely on grandfathered bribery payments from the instos but we can’t fault how effective they have been by comparison to the mortgage industry now can we?
After this removal, the next step will hopefully be the collapse of the FPA next. They are holding this industry back from professionalism.They’re getting commissions from product providers as well, not disclosing it and calling the payments member fees even. FPA members are the scum of the advice industry for putting up with this. You can pick these scum out by their FPA membership.
The FPA are doing deals with CBA & AMP behind members backs and then claiming to represent Financial Planners. What scum are those guys.
Another thing I am struggling with is the all the so called “orphan” clients. I am positive that there will be 1,000s of orphan clients in legacy products that have a component for trail commission included in their fees that are simply retained by the fund manager. The way I am reading this is that the advisers are responsible for the rebate to the client, so therefore if there is no adviser who receives the commission then the client misses out and the fund manger continues to receive the full management fee?
What seems to be forgotten here is that in the days of commissions a lot of us implemented investment products as part of a client’s portfolio and the commission received didn’t go anywhere near covering the cost of providing that advice. We did it though because we knew with the “certainty” of trail commissions as per the respective agreements we had, that in time we would be able to cover our costs and hopefully (heaven forbid) actually make some profit. Well, there goes that
Yes, bring on the class action. Financial advisers now becoming responsible for refunding the trail commissions??? How is that going to work? Doing again a lot of work for nothing??? Where is our FPA here? I am so fed up with governments making decisions without knowing how the system works..
Grandfathered commissions, where advisers have never met or spoken to the client and do no work for the client, are wrong. If you bought one of these books in the past five years you’ve had plenty of time to normalise these clients but of course you can’t because your don’t have the client’s contact details, just their money. At last this industry is being cleaned up and made to act like a profession that puts the client’s interests first. As a financial planner, I believe launching a High Court action by any of the so called professional associations would be stupidity personified.
Wow ! Who would have thought ! Never saw this coming !
but it is okay to force people to hold old pension products because of a centrelink change that means if they move to a new pension they may be adversely affected?
How is it they claim Advisers churn in order to generate additional revenues…but in the same breath claim they leave clients in older products where newer ones may be better for them??
Don’t cry poor, just open an MDA and bang all your clients into commission ridden LIC IPO’s like the rest of the shonks.
Take it as a compliment. Many clients remain in commission paying products due to centrelink grandfathering and high exit penalties. If you move a client to save 1% fee they loose thousands in age pension which results in them being worse off. If yo move a client to save 1% fee but pay thousands in exit fees it takes the client x years to break even.
We have advised clients to retain these products because it is better for them.
Legislators and product providers hope that without a small trail fee paid to us and or name on the annual statements that the clients will withdraw these policies without speaking to us and the product provider will gain large exit fees and the age pension expense for the government will reduce.
They also hope that without a trail fee paid advisers will move the clients to another product for the same result in $ to them as above. Well we wont do it to charge the client money. We will do whatever is better for the client. And we will end up doing alot of ‘retain your current product’ for no cost because we actually do look after clients.
It will eventually unfold that advisers do look after clients and it’s been the product providers and legislators that have been protecting their revenue stream.
Like us, the Gov will come to understand that the product providers duped them again when getting the centrelink grandfathering applied to the product, and not previous income stream holders. It was a scam pulled on legislators so the product providers can retain more money. We (and product providers) were the only people smart enough to see it.
Follow the money is what i say. Who benefits from the proposal? When legislators and product providers shout from the rooftops that they have ‘fixed’ old commission to adviser products essentially ‘advising’ the public that they are bad so get out of them, more exit fees to providers for nothing, and less age pension cost for the government.
And the added benefit of competition (advisers) is gone. Remember, we force product providers to lower costs and improve value to clients and strategies that reduce tax and increase age pension for client. We hit product providers and government bottom lines. That’s why they don’t like us
Why is it in every case the government is thoughtful and measured in their proposals, and the opposition thoughtless and attention seeking?
Bring on the class action…
Holy hell. Sounds like an admin nightmare.
Don’t you just love it when these clowns can just decide to wipe out someone’s income and business. This industry needs to unite and ensure compensation is paid to all advisors affected. You know the one who did nothing wrong , operated legally and within the rules and are now about to be screwed over.
Many Licensees have already been rebating all trail commissions for many years. The reason they have kept clients in those products is due to loss of benefits and other impacts of changing products.
Maybe our friends in Govt also need to look at their legislative processes which force us to leave some clients in dearer (inappropriate?) products due to the poorly thought out Centrelink grandfathering provisions in relation to deeming. If this archaic piece of legislation wasn’t in place there would be quite a number of clients that could be put into cheaper more modern and appropriate products. But this type of thing doesn’t attach itself to political media grandstanding does it?
How about “payment by results” as apposed to “conflicted remuneration” if commission is such a dirty word in this industry. That would change the tune of the type of payment it really is, if you don’t get a result you don’t get paid, how simple can that be. How is it conflicted when we have to disclose every dollar we earn to the client and the client signs off on it, at no cost to them.
Well that was inevitable and somewhat overdue.
I cannot see this not going to the high court.
The adviser looses again & again just take all their income away and be done with it!
If you remove grandfathering of commissions, then the Government needs to produce legislation to remove any penalties for clients to move out of expensive legacy products e.g. rollover relief of CGT, Centrelink exemptions, exit fees.
And where is the regs to stop the Institutional Exit fees on such products that can hurt clients? Thus in many instances it’s too costly for the client to change.
And what about forced CGT events etc on these forced changes ? Govt going to not barge these taxes.
Then advisers have to refund a commission and charge a seperate fee, what a complete admin f##k around designed by pollies with their heads squarely ip their butts on real world reality
This is a travesty which breaks any historical agreements when the policies were initially established. If I am providing a service to client who has a product that has a trail commission and that it is to the advantage of the policy, then there is no way I will be reimbursing that policy holder. Obviously, any consultation with the incumbent government has been totally disregarded and heaven help us should the Bolshies slither into power.
Is government now going to provide relief for people who are in “older products” relating to Allocated/Account Based pensions that could be negatively impacted under the Centrelink Deeming rules if they were to transfer to “newer, better and more affordable products”? I would guess not.
So is that before or after dealer cut?
Jason Pls explain ! Does this mean the adviser still receives the Granfatherd comm, but has to pass it on to the client. Or is the adviser now compelled to offer the service to the client. And what about the Constitutional issue raised by AIOFP. More detail pls – not just the press release
You have got to be kidding. The solution to the contracted payment problem is that the onus will be on the adviser to rebate the commission received to the client. So now even more unproductive administrative work is pushed on to the adviser practice whilst the fund manager/super provider goes on their merry way with no impact. So glad I’m getting out of this industry. Good luck to those that stay is all I can say.
That’s all well and good, but how about they legislate to ensure the commission reductions under FOFA get passed to the client and not retained by the insurer?