AFA: Consumer rights need to be grandfathered

The Association of Financial Advisers (AFA) has highlighted the fact that 1 July 2014 will mark 12 months since the commencement of the grandfathering problem that puts clients at risk should their financial adviser choose or need to move to a new licensee.

The consumer perspective on this issue requires greater focus as the regulations fail to protect those consumers who hold older style products, have advisers providing advice to them on those products and who want or need to retain them.

“Now that the Senate Economic Legislation Committee has reported on the FoFA amendments proposed by the Coalition, we have reminded the Government that the Regulations need to be urgently fixed so that consumers who are happy with their current product and adviser can keep them. We are confident that this will be resolved shortly,” said AFA CEO Brad Fox.

The AFA has been very active in advocating with Treasury, Government and other stakeholders to resolve the issue and Mr Fox said that it appears that bipartisan support exists to amend the grandfathering provisions. “The good news is that both sides of politics have indicated a willingness to address this issue as an unintended consequence of the original FoFA Regulations,” he said.

If grandfathering is not amended then consumers who want to retain their existing adviser may, in certain circumstances, have to switch to a new product. “This could have serious consequences for the consumer in terms of capital gains tax, reduced insurance benefits or hefty exit fees,” Mr Fox said.

“The grandfathering problem, known as Hotel California occurs because grandfathering makes it difficult for advisers to leave their current licensee,” he said. “This means that better licensees can’t attract advisers and poor performing licensees are retaining advisers who want to leave. It has removed open market competition at a critical time.”

With the anniversary of the commencement of this problem fast approaching, the AFA appreciates the previously announced commitment of the Government and the messages of support offered by the Opposition to resolve the grandfathering issue in the interests of consumers who are disaffected by the current regulation.