The government has passed new laws through Parliament effectively ending the payment of grandfathered conflicted remuneration to financial advisers.
Under the legislation passed through Parliament yesterday, grandfathered conflicted remuneration will be banned from 1 January 2021 and product issuers will be required to rebate the amounts to consumers.
The Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019 is in response to a recommendation from the final report of the Hayne royal commission end the payment of grandfathered commissions.
The government has also directed 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.
The Association of Financial Advisers (AFA) has previously said the grandfathering ban leaves advised clients at risk of being worse off, subject to additional expense and/or losing access to their financial adviser.
“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,” AFA chief executive Philip Kewin said.
Similarly, the Financial Planning Association of Australia (FPA) has called for the ban on grandfathered commissions to be deferred and re-examined, expressing concern that the bill does not include a thorough enough plan to prevent the cost of advice rocketing.
The FPA said that while it supports the phasing out of commissions on investment products, the legislation has no additional details or steps in place to ensure customers will benefit from the change.
“Removing commissions must result in a genuine reduction in product fees or the rebating of the commissions to consumers, and we haven’t seen details of how the government expects this will work,” said FPA chief executive Dante De Gori.
However, the Financial Services Council welcomed the legislation, with chief executive Sally Loane saying the FSC has been consistent in its support for ending grandfathered conflicted payments
“It is encouraging to see the government acting promptly on the royal commission implementation roadmap and delivering on Recommendation 2.4, which is expected to benefit Australian consumers,” Ms Loane said.
“This is consistent with the FSC position of enhancing confidence in a strong, sustainable financial services sector, that serves Australians with integrity.”
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