Treasury has released its draft laws to amend grandfathered commissions and invited “interested parties” to comment on the consultation, which proposes that advisers extricate all remaining conflicted commissions from their balance sheet by January 1, 2021.
The amendment would give advice practices 20 months to complete the change.
The draft proposal, which will be open for consultation until March 22, was an expected outcome from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, after Kenneth Hayne answered the question of how commissions that were already deemed conflicted could remain by saying “the answer to that question is clear: they cannot”.
“You’d have to have been living under a rock to be surprised by this announcement,” Simon Carrodus, senior associate at The Fold Legal, said. “It was clear that grandfathered trail commissions would be phased out.”
Nathan Jacobsen, managing director of licensee Paragem, agreed. He said the draft legislation was “consistent with what we’re expecting”.
After Hayne’s recommendation, which echoed that of the Productivity Commission, the government’s response was a fait accompli. In a statement accompanying the draft legislation, Treasurer Josh Frydenberg also included an obligation for product manufacturers to rebate consumers for any grandfathered remuneration paid after the cut-off date.
Apart from executive heads rolling at AMP and NAB, this is the first tangible outcome of the inquiry.
The burden of figuring out the best way to decouple commissions will be shared amongst advisers, product manufacturers and ASIC.
The government put the onus on ASIC by issuing a ministerial direction requiring the regulator to undertake “an investigation to monitor and report on industry behaviour in the period 1 July 2019 to 1 January 2021”, Frydenberg’s release states.
The regulator provided clarity on its role, stating it would “monitor and report on the extent to which product issuers are acting to end the grandfathering of conflicted remuneration…including consideration of the passing through of benefits to clients, whether through direct rebates or otherwise”.
‘Stealing my business assets’
The draft legislation’s release has instigated a raft of indignant responses from opponents to the commission repeal.
Association of Financial Advisers general manager of policy and professionalism Phil Anderson argues that none of the complexities of unravelling commissions have been properly addressed.
“This issue is much more complicated than anyone seems to appreciate,” Anderson said. “If clients will be required to move from one product to another, how is the government going to address the potential implications with respect to CGT, Centrelink deeming treatment and Insurance?”
Advisers with commissions on their books have, by and large, avoided pre-empting the ban. A Professional Planner online poll in December last year revealed that a combined 42 per cent of advisers still received either 15 to 25 per cent (18.5 per cent), 25 to 50 per cent (11.5 per cent) or over 50 per cent (12 per cent) of their revenue from grandfathered commissions.
Kelly Roche, a principal adviser at Integrity Wealth Planners, personifies the view of advisers that oppose the cull on the basis that it is unconstitutional, and tantamount to theft of property.
“They’re not taking into account the small-business owner who’s paid for something that’s now going to be worthless,” Roche said. “In my view, they’re stealing my business assets from me.”
This view is shared by the Association of Independently Owned Financial Planners, which informed its members today that it would look to launch a legal challenge to the proposed reform.
Others are more amenable to the change. Paragem’s Jacobsen said speed of action was crucial – and what consumers were looking for in the wake of the Hayne inquiry.
“The important thing is that they are moving quickly,” Jacobsen said. “It’s a real benefit for the industry because it gives certainty to advice licensees and providers in meeting the recommendations from the royal commission.”
Jacobsen acknowledged, however, that the road ahead for advisers would be bumpy. The unwinding of commissions will need to happen while balancing both client and commercial interests.
“There are mechanical issues to solve,” Jacobsen said. “There will be a lot of contractual issues and client implications, and there may be some need for relief so that there’s no detriment to clients.”
Regardless, Jacobsen believes the legislation should forge ahead.
“These issues are solvable,” he said.