The government has passed legislation through the House of Representatives to end the payment of grandfathered remuneration to financial advisers.
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.”
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