AMP, Australia’s largest wealth management business, will be hamstrung in trying to reach moral high ground on grandfathered commissions next to competitors BT Financial Group and Macquarie, which pledged recently to ban potentially conflicted remuneration their salaried advisers earn.
BT and Macquarie have said they will shut down grandfathered commissions to their salaried adviser networks in announcements last week and this week, respectively. It’s a move AMP will be challenged to match because most advisers in its network are self-employed.
The BT decision to ban grandfathered commissions affects about 140,000 clients of advisers operating through the Westpac, St George, Bank of Melbourne and BankSA networks, the group stated. BT estimated the financial impact of these changes represented $14 million of cash earnings in the first half of this calendar year.
Macquarie said in an announcement this week that 17,000 customer accounts would “benefit” from the change. The company didn’t quantify the potential cost to the business.
The commentary woven into the BT and Macquarie announcements suggested the investment firms wanted to claw back trust lost during the scathing Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry findings.
Professional Planner outlined the importance of the decision by wealth management and advice businesses about banning grandfathered commissions in the cover story of the July issue of the magazine.
“The decision to discontinue grandfathered product commissions is part of our continued business transformation and in order to further increase transparency and demonstrate value to our clients,” Macquarie said in a statement.
BT chief executive Brad Cooper said: “We have considered this position from both a customer and a stakeholder perspective and decided that it is the right time to draw a line under these past arrangements and eliminate them as far as we are contractually able.”
AMP in a tough position
The BT and Macquarie announcements to ban grandfathered commissions put the two institutions ahead of where many within the industry expect policymakers to push providers of advice following the royal commission’s final report in February. And it will be difficult for AMP to follow suit because its network of advisers is predominantly self-employed.
BT and Macquarie have shut down grandfathered commissions to their adviser networks but not contractually to their broader network of self-employed advisers; wealth and advice businesses are able to shut down only those grandfathered commissions captured in their own profit-and-loss statements (P&L), Morgan Stanley executive director Daniel Toohey pointed out.
In the case of AMP, with its network of authorised representative advice practices, the commission payments come under each planning practice’s own P&L and not the licence holder’s – so AMP can’t ban them.
“BT is taking the moral high ground and other advice and wealth management networks are under pressure to do something,” Toohey said.
To make a statement along the lines of the BT and Macquarie announcements, AMP could look to ban grandfathered commissions within ipac (now called AMP Advice), the group’s only advice business whose planners are not self-employed. Ipac employs about 159 advisers in 15 practices.
Advisers AMP employs haven’t received grandfathered commissions since July 2014, AMP figures show. Grandfathered commissions account for between 15 per cent and 20 per cent of AMP advisers’ income, the figures show.
A spokesperson for AMP said the group has publicly supported a fee-for-service advice model as the best outcome for both the industry and customers.
“We have evolved our business model in line with the changes under [Future of Financial Advice legislation],” an AMP spokesperson said. “Fees for service now account for a large portion of the income earned by our advisers, most of whom are self-employed. Grandfathered commissions will continue to substantially reduce over the next few years,” the AMP spokesperson said.
The public shunning of grandfathered commissions could be the low-hanging fruit in the battle to end conflicted remuneration. Switching customers out of these legacy products and putting them into offerings with contemporary pricing will present greater challenges for the advice and wealth management industry, something the royal commission will probably address in its upcoming reports.