The Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019 passed through the House on Tuesday.
The ban was one of the recommendations of the Hayne royal commission final report.
“To support this legislation and to ensure that the benefits of removing grandfathered conflicted remuneration flow through to clients, the government has commissioned ASIC to monitor and report on the extent to which product issuers are acting to end the grandfathering of conflicted remuneration in the period between 1 July 2019 and 1 January 2021,” said Treasurer Josh Frydenberg.
The Association of Financial Advisers criticised the move, saying advised clients are now at risk of being worse off, subject to additional expense and/or losing access to their financial adviser.
In response, AFA chief executive Philip Kewin called for a three-year transition period to allow advisers sufficient time to adjust to the changes.
“We are deeply disappointed at the lack of analysis on the impacts of this reform and the lack of communication and guidance for impacted clients and advisers. At this stage there will be many thousands of cases where a sensible solution is simply not available,” Mr Kewin said.
Mr Kewin also called on the government and ASIC to provide guidance and assistance to advisers so that they know what they should do to help their impacted clients.
“We particularly call on ASIC to consider all options to simplify the advice requirements for advisers, so that they can help as many of these clients as possible before the deadline,” he said.
Further, Mr Kewin also called on product providers to work to the legislated time frame of 1 January 2021.
“In many cases, turning off grandfathering before the legislated date will only serve to stop advisers being paid, the benefit may not be passed on to the client and the ongoing servicing will be left to the institution providing the product,” he said.
While Mr Kewin noted that while the legislation does not impact all advisers, he also said the AFA is very conscious that advisers with a greater than average exposure to grandfathered commission clients will be profoundly impacted.
“Some of these advisers have a significant level of debt that is secured by grandfathered commission clients,” he said.
“We call on the banks to treat these financial advisers with respect and allow them time to adjust their business models so that they are viable in the longer term. We also call on the government to carefully monitor the implementation of this part of the reform.”
[b]The main issue here is not “Grandfathered Commission”[/b][b][/b] [or “Trailing Commission” or “Servicing Commission”]. All of those issues can easily be resolved [for example] by mandating that they be included in the Fee Disclosure Statement [“FDS”] regime.
1. The main issue here is the Government completely ignoring Constitutional limits on confiscating property without just recompense;
2. A “Government” which [b]ignores the most fundamental “Founding Documents” of a nation[/b][b][/b] is a “Government” [b]which is well on its way to totalitarianism[/b][b][/b]. You can philosophically argue policy, costs, and potential consequences. [b]You can’t attempt to ignore and undermine the most fundamental aspects and founding documentation of a law abiding society.[/b][b][/b] without serious consequences and precedents being created.
[b]It is a blatant attempt to grab power and confiscate private property [an income stream]; worked for or bought and paid for legally. It is “Might Versus Right”, and an unbridled attempt to see “What can we get away with”. [/b][b][/b]This would only be the start of the destruction of Australian society – just watch as “Type A” politicians grab more and more, until we are back in a bankrupt, class and caste based society.
It is another step on the road to dictatorship and the breakdown of a democratic society, much like Venezuela gradually legislated and “Bought off” the Public Service, military, and other interested parties while the country descended into chaos and lawlessness.
3. In addition, the fact that this is clear, obvious, and already documented [Treasury opinion pre FoFA] is an even more blatant disregard for the law, democracy, good governance, and acting in the “Best Interests” of a Nation.
Anyone who can read legislation knows that there is more and more [b]legislation “criminalising” basic civil activities [/b][b][/b] across all aspects of life across Australia; mandating “Guilty Until Proven Innocent” [rather than the basic Western “Innocent Until Proven Guilty”]; and unilaterally imposing enormous penalties, all which can be imposed with the click of a mouse.
[b]The idea that a so called “Government” can simply write “law” confiscating private property[/b][b][/b] without serious public consultation, creating alternatives, and compensation is [b]LUNACY[/b][b][/b]. In addition, it is a clear abuse of power. The clear and obvious immediate beneficiaries are the Banks and large Institutions, because there is no way of unwinding existing bundled products without [b]expending billions in software and computing costs[/b][b][/b], not to mention hurting clients.
Does anyone remember the convoluted “Super Surcharge” from the early 2000’s, requiring enormous amounts of extra bureaucracy, individual calculations of ATI [Adjusted Taxable Income, etc]? Another boneheaded, costly, Treasury initiative… There were far easier, less complicated solutions to a perceived political problem.
Although this may appear overly dramatic, this type of “legislation is the type of law which pushes people toward revolution and civil war. “Taxation without representation” was enough to start the American Revolutionary War. There have already been 16 documented suicides.
4. The last really serious aspect [to be outlined here!] of this perverted, corrupt “legislation” is the reflection on our so called “Representatives”. [b]How does this abomination and perversion of government reflect on the ability to think, analyse, understand the legal, principled framework, and cascading consequences[/b][b][/b]? Why are they “Going along to get along” with this corrupt abomination?
IMO, it is absolutely necessary to support the AIOFP “Constitutional Challenge”, even if you think that there is justification for moving away from grandfathered commission. [b]It is a FAR BIGGER social issue.[/b][b][/b]
i have no issues with the changes. I do, however have an issue with how quickly this was rushed through and without those planners having a sufficient transition period (particularly new planners)
[quote=Anonymous]I have a feeling ASIC will eventually regulate all of Australia into a recession with their red tape. [/quote][quote=Anonymous]I have a feeling ASIC will eventually regulate all of Australia into a recession with their red tape. [/quote]
I could not agree more with this.
[b]Quote: I have a feeling ASIC will eventually regulate all of Australia into a recession with their red tape. [/b][b][/b][i][/i][i][/i] 100% spot on !!!!!!!
A regulator that has been asleep at the wheel for 20 years and let the Banks and AMP completely trash Financial Advice is now hell bent on being seen to be doing something, anything, everything about Red Tape rubbish.
More BS Red Tape, More BS Compliance Costs, More BS absolute BS from a bunch of administrators that have next to zero idea of the day in the life of a Independent Financial Adviser.
REGULATED TO DEATH – RIP sensible Independent Financial Advice.
ASIC, ATO, Kenny Boy Hayne – had you banned vertical integration sooooooooo much of the BS red tape compliance would be completely unnecessary. But you don’t have the balls to do the right thing.
Dear ASIC,
If I buy a general insurance policy from a Broker for my car, house or van, and the renewal comes around, does the Broker need to provide me with a ROE or whatever in order to get his 20% commission? Because I want my house covered without going thru all the BS again!!
Secondly, this comment …”payments are not adequately disclosed to the client, in a manner that allows the client to make an informed decision.”…
is questionable because I used to receive 2.5% annually of the premium and the client knew that. don’t yours?
I have a feeling ASIC will eventually regulate all of Australia into a recession with their red tape.
Another win for the big end of town. I am sure there will be the “holier than thou” approach from some advisers saying that we only do fee for service. However, if there is the expectation the Fund Managers will pass on the reduction in lower management fees, our glorious legislators have their heads where the sun doesn’t shine!!!! Less income for advisers, greater cost for consumers, no flexibility in options for the client to pay for the services…….sounds like great policy for someone. Further proof Hayne and the legislators have no idea and assume all advisers are commission based sales people. No wonder good advisers are leaving the industry in droves, it is assumed they are all dodgy!!!!!
[quote=Chris Craggs]Hi John,
No one is saying that you can’t service your clients, on the contrary, everyone wants you to service your client. What the pollies are saying though, is that they want the payment for this advice to be transparent. Right now, with grandfathered commissions, advisers are being paid and these payments are not adequately disclosed to the client, in a manner that allows the client to make an informed decision.
No one is saying that advisers can’t continue to service clients. If clients can not see the value in your advice, then the difficulty for you is deciding whether to drop your fees, or move onto the next client who will pay.
My business has moved to a fee for service basis. An agreed monthly amount paid by the client. We have had success in rolling this out to existing clients, and great success with prospects (more so since the royal commission). Clients are very happy with a transparent fee structure. We have lost some clients, and we have not picked up every prospect, that’s business.
We can fight this, or we can adapt. I choose to adapt, and from what I have seen, clients are happy to come along.
[/quote][quote=Chris Craggs]Hi John,
No one is saying that you can’t service your clients, on the contrary, everyone wants you to service your client. What the pollies are saying though, is that they want the payment for this advice to be transparent. Right now, with grandfathered commissions, advisers are being paid and these payments are not adequately disclosed to the client, in a manner that allows the client to make an informed decision.
No one is saying that advisers can’t continue to service clients. If clients can not see the value in your advice, then the difficulty for you is deciding whether to drop your fees, or move onto the next client who will pay.
My business has moved to a fee for service basis. An agreed monthly amount paid by the client. We have had success in rolling this out to existing clients, and great success with prospects (more so since the royal commission). Clients are very happy with a transparent fee structure. We have lost some clients, and we have not picked up every prospect, that’s business.
We can fight this, or we can adapt. I choose to adapt, and from what I have seen, clients are happy to come along.
[/quote]
I’ve only just joined the industry, so excuse my ignorance, but isn’t the only winner here the institutes? The customer does/may still keep the product, but no more paying comms to the adviser. Would the premium actually go down?
This is an absolute rubbish legislation that will come back to haunt the lawmakers as the Hayne Royal Commission recommendations have been too far over reaching. As volume bonuses no longer exist where is the conflict of interest in retaining on going trail commissions from bundled contracts if a satisfactory service is provided to the policy holder? Some of these contracts cannot be altered an to change others would require the client to pay for an SoA they don’t require.. The Hayne Royal Commission has created an unnecessary ruin for many good people.
Hey Chris Craggs, what’s your minimum fee? I moved to fee for service in 2009 and so I’m not impacted as I derive 99% of my income fees. However the issue is not so much “transparency” it’s being able to service all Australians. With ASIC defining what a customer service is (an annual RoA) and now annual letters of engagement setting out the future fee and returning advice fee income, it’s fairly impossible to offer ordinary Australians financial advice from 2020 and for that advice to be compliant. Every time an ordinary Mum and Dad ring I now groan because I just can’t provide advice to them. It’s not a good place to be.
For the last 10 years I’ve gradually been turning off commission clients and turning those people away and the only thing within my control now is the relationship I have with hi net worth clients and to ensure my industry association starts representing me the adviser.
““We call on the banks to treat these financial advisers with respect and allow them time to adjust their business models so that they are viable in the longer term.”
Oh yeah, I mean the 7+ years since FOFA was announced wasn’t ample time or anything….
I wrote to the FPA prior to the Royal Commission calling for it to disassociate itself from the many product manufacturing firms hauled before the Royal Commission in an attempt for us as industry to have a self regulatory body and in an attempt to avoid the over regulation we’re now facing. You can’t have a body like the FPA get $60,000 plus a year from a firm like AMP (an example) and then expect that same body to represent our brothers and sister advisers at AMP and also Australians. It just dosen’t work.
The question is what lessons have you learned from this? You didn’t learn anything from FoFA, you didn’t learn anything from LIF, and you didn’t learn anything from FASEA, and you’re an absolute idiot if you think having industry associations like the FPA who continue to get payments from large manufacturing firms to “help shape the future of financial advice” is still the way to go.
Some brave sole needs to step forward and start a new body for Advisers and Australians. Please write and call an end to the professional partner program and let’s get start showing Treasury and ASIC we’re self regulating. Dante De Gori is already learning Japanese so we need to do it before it’s too late.
While the majority of our business is now fee for service, I believe a basic trail commission (not sure what the magic figure is, maybe 0.15%pa) across the board for all products (including industry funds) would assist with servicing low touch point clients.
Not all clients need a formal review each year (which seems to be the deciding factor as to why a client has an ongoing service agreement), however many clients seek comfort in knowing they have access to an adviser (not a faceless call centre), someone they can call upon that already has an outline of their situation, be able to ask questions (not a recommendation but educate), obtain reports, discuss life’s financial journey, etc. This basic fee would allow clients to keep the themselves engaged with the view of eventually obtaining formal advice when required with an adviser they already have an association with (at present, no ongoing service agreement means no relationship)
Many Australian’s will be left worse off! – If you agree STAND UP FOR YOUR BUSINESS AND THE INDUSTRY and support the AIOFP Grandfathered Revenue Challenge
https://arcfund.com.au/
[quote=Anonymous]Everyone knew this day would come…. Advisers and business principles need to stop making excuses and revamp their business models accordingly and move with the times. The gravy train has run it’s course. Fee for service![/quote][quote=Anonymous]Everyone knew this day would come…. Advisers and business principles need to stop making excuses and revamp their business models accordingly and move with the times. The gravy train has run it’s course. Fee for service![/quote]
yep – 100% agree!!
[quote=Anonymous]Everyone knew this day would come…. Advisers and business principles need to stop making excuses and revamp their business models accordingly and move with the times. The gravy train has run it’s course. Fee for service![/quote
FYI it is Business Principals not business principles. Also gravy train…..can you explain this? I have a small number of clients still on trail commission and given the average trail is about 0.4-0.5 of AUM i run at a lost of a profit per client basis compared to my fixed fee clients. I can only assume you dont understand how trailing commissions are structured and are getting a little confused with the old property fund, mortgage fund comms that are long gone. Maybe do some research before commenting on matters you clearly lack an understanding of.
If industry funds employ people to provide general advice and their salaries are deducted out of all members accounts irrespective of whether they use the service or not how is that any different to paying a trailing commission to support the running costs of a self employed adviser providing advice to the same members ? If the industry funds don’t employ anyone to help clients with queries around market volatility, age pension eligibility,tax planning etc how will they be serviced ? The assumption that because a few people have not received service to imply all clients receive no service is not only seriously flawed but will see a whole cohort of advisers and clients with nowhere to turn. And the impact on the Australian economy will be huge at a time when service industries are the one area where job creation is critical. The advisers that have never serviced the lower end of the market will be able to pump themselves on the chest because they don’t want to be associated with that end of the market ! Perhaps these self righteous ones should stop their personal self promotion and start offering a pro bono service to fill the void.
The client need not be impacted – lower costs on the product side offset by direct advice fees. If clients value your advice and you have a good relationship with them, they’ll understand this concept.
I congratulate the AFA (and AIOFP).
The FPA remain useless, and conflicted themselves by the funding they receive from product providers. I am amazed that any adviser maintains membership to the FPA.
Anonymous who said that the days of Money for Nothing are over is 100% correct. If you’ve got a relationship with a client and provide that client with value they will pay a fee and if you’re acted on the all the forward warning that has been given are most likely already paying you a fee. The changes to the industry have been known for many years and anyone calling for more time “to adjust” has just been hoping the changes won’t won’t happen rather than realigning their business. Specifically grandfathered commissions have always been suspect and only add to creating a bad industry reputation.
“”In a letter to members, AFA general manager, policy and professionalism, Phil Anderson expressed concern that the Government had moved ahead with the legislation without listening to the arguments of planners and without taking account of likely significant client disruption and detriment.
Further, the letter makes the point that the legislation has sought to remove key adviser protections contained in Section 1350 of the Corporations Act which provides for compensation to be paid to small business financial advisers where product providers unilaterally vary the terms of existing agreements in a manner that is in breach of contract.
“The fact that the Government is choosing to remove the applicability of this section, is in our view, an acknowledgement that there is the potential for constitutional issues with respect to the acquisition of property on other than just terms,” it said.
“For us, the biggest issue with respect to the removal of the applicability of Section 1350, is that the Government is removing the rights of small business financial advice firms in order to protect the interests of predominantly large business financial product providers.” “”
RUOK with the Constitution being changed by stealth???? Today grandfathered Commissions, tomorrow ????
This is a matter of principle regarding advisers rights and the their ability to continue to serve their clients, including those small lower value clients that we are now being told we must “cut loose” by our dealer groups.
Please support the ARC constitutional challenge fund ( https://arcfund.com.au/ ) and spread the word to ALL advisers. This GF issue is just the thin edge of the wedge and Advisers need to stand up! https://arcfund.com.au/
Hi John,
No one is saying that you can’t service your clients, on the contrary, everyone wants you to service your client. What the pollies are saying though, is that they want the payment for this advice to be transparent. Right now, with grandfathered commissions, advisers are being paid and these payments are not adequately disclosed to the client, in a manner that allows the client to make an informed decision.
No one is saying that advisers can’t continue to service clients. If clients can not see the value in your advice, then the difficulty for you is deciding whether to drop your fees, or move onto the next client who will pay.
My business has moved to a fee for service basis. An agreed monthly amount paid by the client. We have had success in rolling this out to existing clients, and great success with prospects (more so since the royal commission). Clients are very happy with a transparent fee structure. We have lost some clients, and we have not picked up every prospect, that’s business.
We can fight this, or we can adapt. I choose to adapt, and from what I have seen, clients are happy to come along.
Politicians continue to get lifetime pensions, travel benefits and other perks because it was a part of the contract when they signed up. No-one is taking those away!
And yet in reality, they do more harm to this country than advisers in looking after their clients.
[quote=John Edwards]Can anyone explain why the proposed removal of trailing commissions for mortgage brokers was reversed to support small business but the same logic was not applied to grandfathered commissions on super and investments ? No don’t just ignore the question and move on. Please respond. In an environment where there is so much uncertainty over sharemarkets and low interest rates and changes to age pension rules, industry funds promoting balanced funds that have up to 90% in growth assets is now really the time to cut clients adrift ? Please stop the verbal diarrhoea about professionalism. These are real people that need servicing and deserve a proper answer to this question.[/quote][quote=John Edwards]Can anyone explain why the proposed removal of trailing commissions for mortgage brokers was reversed to support small business but the same logic was not applied to grandfathered commissions on super and investments ? No don’t just ignore the question and move on. Please respond. In an environment where there is so much uncertainty over sharemarkets and low interest rates and changes to age pension rules, industry funds promoting balanced funds that have up to 90% in growth assets is now really the time to cut clients adrift ? Please stop the verbal diarrhoea about professionalism. These are real people that need servicing and deserve a proper answer to this question.[/quote]
Because in financial advice, the industry funds are being held up as the exemplary service model (yes, I know there are limitations).
The mortgage broking sector does not have a comparable equivalent competitor.
Not even Bill Shorten and his Labor buddy Industry Funds had the gall to steal advisers legal rights to contracted income agreements.
Now the so called Liberal party thinks it is fine to steal this contracted income from Advisers, with zero compensation.
Does anyone remember when the Liberals used to say they supported small business ? I can’t !!
Seems to be a long time ago that they did.
How about some more red tape regulation Liberal to completely strangle small business advisers. Oh that’s right you have loads and loads of that rolling out the door almost daily. Very very sad Liberal Party.
Advisers will only lose out on commissions they receive where they do nothing for their client. If you provide advice and service your client will pay you a fee. Money for nothing is over!
This industry is just so broken, its staggering – and the uneducated, ignorant and stubborn pollies couldn’t care one bit!
Josh Frydenberg is a bloody liar. He understands the damage this will do to the industry and the livelihood of so many good quality, honest advisers but is pushing ahead to serve his own interests. What an absolute disgrace this all is. I
really feel for advisers who borrowed against books they purchased with GR to have this happen. It’s just so wrong this can be allowed to happen. Like so many, I’ll look back one day and recall these times. I have no doubt that people will wonder whatever happened to financial advisers.
Remove Grandfathered commissions, remove trailing commissions for Mortgage brokers, remove General Advice. Introduce individual & direct licensing with ASIC. I’m sick of being lumped in with other dodgy businesses in the financial services sector.
Can anyone explain why the proposed removal of trailing commissions for mortgage brokers was reversed to support small business but the same logic was not applied to grandfathered commissions on super and investments ? No don’t just ignore the question and move on. Please respond. In an environment where there is so much uncertainty over sharemarkets and low interest rates and changes to age pension rules, industry funds promoting balanced funds that have up to 90% in growth assets is now really the time to cut clients adrift ? Please stop the verbal diarrhoea about professionalism. These are real people that need servicing and deserve a proper answer to this question.
Wow. Yet another example of the informed people in Canberra making quick decisions without fully understanding the consequences of their actions. If it wasn’t so serious it would be a joke.
Everyone knew this day would come…. Advisers and business principles need to stop making excuses and revamp their business models accordingly and move with the times. The gravy train has run it’s course. Fee for service!