The leading financial advice associations have reacted strongly to Treasury’s confirmation that the Coalition Government is introducing legislation to ban grandfathered commissions, with both the AFA and the FPA questioning a lack of detail around consumer benefits and the 17-month time-frame advisers have to ‘clean’ their books.
On Wednesday Treasury issues a joint media release on behalf of Treasurer Josh Frydenberg and the Assistant Minister for Superannuation, Financial Services and Financial Technology, Jane Hume, announcing that legislation to ban grandfathered commissions by January, 2021, would be put forward the following day.
The response from the Association’s was swift, with Financial Planning Association chief executive Dante De Gori questioning whether the Government had mapped out what the benefit to clients would be.
“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,” De Gori said in a media release.
A key concern for the FPA is the lack of clarity around a Bill included in the legislation outlining a scheme to ensure those paying conflicted remuneration rebate the money to clients after the ban kicks in.
“The FPA urges the Government to provide a full three-year transition period and release further details of the proposed rebating and monitoring scheme so they can be examined by the industry,” the release stated.
Yesterday the Association of Financial Advisers put out a release stating that while getting rid of legacy commissions was a “necessary step in the journey towards professionalism”, it was “deeply concerned about the lack of industry consultation, the limited timeframe and the lack of guidance for impacted advisers.”
The AFA’s chief executive, Phil Kewin, said a particular concern was the lack of detail about exemptions for clients that would actually be better off retaining the products purchased under conflicted arrangements.
“We are also concerned that there has been no assessment of the number of consumers impacted by this measure,” Kewin said in the release.
A lot of work is needed
Grandfathered commissions were allowed as part of the 2014 Future of Financial Advice reforms, which put a stop to advisers receiving new payments from providers for recommending financial products. To help advisers transition to a post-conflicted remuneration environment, existing agreements were carved out from the reform.
Ending those grandfathered commissions was a key recommendation of the Hayne royal commission, and it received broad bi-partisan support from the major political parties who were campaigning in the federal election at the time.
Treasury’s announcement of the ban came after draft legislation to that effect was released in in March, which effectively gave advisers 20 months to kill grandfathered commissions.
The draft legislation was open for consultation until March 22. The Government also enlisted the Australian Securities and Investments Commissions to engage licensees and track how the industry was adjusting to the impending reform, which ASIC confirmed to Professional Planner in May.
“ASIC has been directed by the Federal Government to investigate and monitor arrangements by industry to end grandfathered remuneration in the period 1 July, 2019 to 1 January, 2021. We have commenced work in preparation for this,” a spokesperson said.
According to the major representatives of the advice industry, however, more work needs to be done – and more time given – to ensure the ban benefits consumers.
“Removing grandfathering in a manner that ensures that it works in the best interests of clients will take a lot of work by many stakeholders and that takes time,” the AFA’s Kewin said.