Commonwealth Bank’s Colonial First State will be the first institution in the country to put its adviser relationships to the test with a plan to move ahead of legislators on ongoing service arrangements and grandfathered commissions associated with clients on its FirstChoice platform.
In addition to sending out letters to around 300 advisers in the last week – these advisers have been given four months to agree to reauthorise the continuation of their service fees – the bank-owned wealth business is understood to be preparing to tell advisers it will end grandfathered commissions payments on June 30 2020 – six months in advance of the deadline given to end these commissions.
CBA floated the plan to end the payment of grandfathered commissions early with the network of advisers it works closest with, it is understood. CBA’s once aligned dealer groups including Financial Wisdom, Count Financial and CountPlus are likely to have the most concentrated network of FirstChoice users.
An official CFS spokesperson confirmed that the institution plans to phase-out grandfathered commissions throughout 2020. This spokesperson said that while CFS is aiming for a mid-year phase-out, it has yet to confirm a specific date.
Several industry observers have suggested that CFS’s Trustee and Responsible Entity board is likely to be pushing hard for the company to move ahead of legislators on grandfathered commissions and ongoing service fees. This pressure has come to bear in light of APRA and ASIC’s combined investigation on superannuation fees, which remains ongoing. The regulators sent their joint letter to all registered super trustees back in April.
Westpac-owned BT was the first to make a splash in June last year, saying it would end grandfathered commissions within its owned advice network, but this move did not relate to the relationships it has within its non-owned/aligned or so called ‘independent financial adviser’ market.
The industry’s largest wealth manager, IOOF, has also floated its intention to reshape adviser service arrangements; similar to BT’s announcement, IOOF’s plan is believed to be limited to advisers within its own network.
CFS’s decision to move ahead of legislators on adviser commission and service agreements will test its relationships with advisers it no longer licensees at a time when advice practices are already stretching to the limit to meet new rules within proposed transition time frames.
“Going early like this will result in some businesses blowing up,” one industry observer reckoned. “It’s not a good look when you’ve got bullets flying over your head and the person who is supposed to be your partner in all this says ‘it’s either you or me’,” this observer said.
“There is absolutely a balancing act,” said Michael Vrisakis, a partner at Herbert Smith Freehill, describing the requirement for institutions to manage super trustee obligations alongside their broader commercial interests.
Vrisakis noted that some firms might have different levels of conservatism relating to their trustee obligations depending on their interpretations.
“Trustees do not have to get the best possible result for their members, that’s not the legal requirement,” he said. “They need to get a reasonable deal for their member, not the best deal.”