EXCLUSIVE An industry association has stressed that Australian consumers will be forced to pay more for financial advice once the government outlaws grandfathered commissions.
The Australian government announced this week that it will introduce legislation on Thursday to ban the grandfathering of conflicted remuneration paid to financial advisers.
The Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019 will mandate grandfathered commissions are expelled by 1 January 2021.
AIOFP executive director Peter Johnston told ifa that if the government were serious about grandfathered revenue and assisting consumers, they would have legislated that the institutions give 100 per cent of the revenue back to investors.
“The institutional lobby have spun the notion that this revenue is sourced from client accounts. It is not,” Mr Johnston said.
“This revenue comes out of the institutions’ fee they charge clients and advisers have been using it to subsidise advice costs to clients.
“The very likely outcome will be the institutions will keep most of the revenue citing ‘recovery costs’, consumers will see little benefit and advisers will now have to charge clients more for ongoing services.”
In a recent episode of The ifa Podcast, MLC general manager of distribution Geoff Rogers explained that the move from commissions to fees will force many advisers to move “up market” and service wealthier clients.
“If you’re using a fee for advice and that advice fee might be averaging $5,000 or $6,000 a year, you’ll generally find that you will end up with a segment who can afford it,” he said.
Following the release of the royal commission final report, which recommended that grandfathered commissions be banned, the AIOFP launched the Advice Regulation Challenge (ARC) strategy.
Funded by advisers, the ARC strategy will challenge the government’s decision to ban grandfathered commissions in the High Court, arguing that the decision is unconstitutional.
Mr Johnston explained that in 2011, then financial services minister Bill Shorten advised Parliament that they could not cancel commercial contracts under the Constitution unless it was on just terms.
“The Constitution has not changed since 2011 and we believe that is still the case. We are going to challenge this legislation in the High Court and if the same result occurs, the government would have wasted over $3 million of tax payers money on legal fees,” he said.
While some advisers support the government’s decision to ban grandfathered revenue, others rely heavily on the income stream to support their businesses and continue serving clients.
Mr Johnston said those advisers who don’t agree with grandfathered revenue should be more considerate to those who do.
“The ARC strategy is all about making a statement to politicians and ASIC that the advice community is very tired of being unfairly targeted and we are a united group,” he said.
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