The AFA has expressed its strong reservations in relation to a number of issues surrounding the removal of grandfathered investment and superannuation commissions (see: Government Confirms Grandfathering Ban Date).
While acknowledging that the removal of grandfathered commissions is a necessary step in what it says is ‘…the journey towards professionalism and in building consumer trust in financial advice’, the Association says it holds deep concerns about the manner of its removal. These concerns revolve around what it says is:
- The lack of industry consultation involved in reaching this point
- The limited timeframe set for its removal
- The lack of guidance for impacted advisers
…there has been no assessment of the number of consumers impacted by this measure
AFA CEO, Philip Kewin commented, “We are particularly concerned that the Bill to end the grandfathering of commissions on investment and superannuation products …does not adequately provide a mechanism for exemptions where the client is better off in their current arrangement.” Kewin added the AFA was also concerned that there has been no assessment of the number of consumers impacted by this measure.
Kewin said the removal of grandfathered commissions is highly complex and can’t be dealt with simplistically, and certainly not in such a short timeframe:
“Retrospective legislation is not common for Governments, and often creates significant challenges,” he said, adding that the complexity he referred to arises because of the huge variety of products, administration systems and client situations. “There are numerous different scenarios with a multitude of different consequences.”
Kewin highlighted three areas to which consideration needs to be given in circumstances where a client is prevented from moving products as a result of:
- Capital Gains Tax
- Grandfathered Centrelink Asset Test treatment
- Insurance issues
“Financial advisers will need to spend a significant amount of time dealing with a variety of challenging situations,” continued Kewin. “They will be required to contact their clients, review their circumstances and make a recommendation, which in many cases would involve an additional fee for that service.”
He added it will take some time for the product providers to prepare for these changes, meaning that the proposed window will not be sufficient for either the advisers or the hundreds of thousands of impacted clients.
“Financial advisers will also need guidance on how to confront this challenge but none has yet been provided,” said Kewin, in arguing for:
- Greater industry-wide consultation on the unintended consequences of a ban on grandfathered commissions
- A three-year transition period
- A provision for exemptions where the existing product is best suited to the client or the client may be disadvantaged by changing their current investment or superannuation product
“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,” he said.
ASIC, the FSC and the government have successfully nailed the coffin shut! The AFA and the FPA can only defer its burial.
At least the AFA allow comments at the bottom of their stories FPA are way to afraid of the comments they will receive for being the worst representation of an industry…. The question I want answered is for all these ‘contracts’ that they are going to turn off without any word of compensation. who is going to pay the commercial loans back to the banks for assets paid for but we no longer acquire? I for one have a loan on some grandfathered clients bought before this ridiculous bill was introduced. I can no longer use the income in my loan review each year…… I for one will just stop paying my loan back to the bank or as an industry are we all going to declare bankrupt? The Ivory tower is easy to point from but they forget that there are ordinary people on the back of these businesses that are being hurt. The banks were the problem but the small AR is the one punished, over the industry bodies…….
Best to keep writing to all the cross benchers and other relevant politicians with real stories of what the impacts are to individual families like ourselves. Without these personal messages it is too easy for the politicial decision makers to just go with the flow and ignore the “industry bodies’ advice. If enough of us send them our individual stories, maybe it will make some difference – if only in the lead time they give us.
Bottom line here is the legislation is just the top cover for ASIC/Gov’t. Product issuers are under massive pressure as trustees to act in members’ best interests from ASIC to have grandfathering removed because it’s seen that ALL removal of fees is a good thing for members. We all know that’s ASIC’s view and we all know that in many cases this is true for clients but many others will be hugely disadvantaged and not able to access advice anymore. And we all know ASIC has no concern for practices/businesses in this environment, nor owner/employee fallout. ASIC is where the heat is coming from on trustees, not the date of the legislation. So my read is that grandfathering by most product issuers will be switched off WAY SOONER than the deadline as far as legislation is concerned so trustees can protect themselves and be seen to act in members’ best interests (it’s a different legislative route to the same outcome they want – ie: attack the trustees and force them to act in members’ interests asap). It’s like PYS – many clients will benefit – MANY will be disadvantaged and ultimately we as tax payers will pay for that in years to come as social security takes the burden instead of insurance companies.
As to loans on books, yep – massive shifts mean many of us will face serious commercial fallout. Whilst I absolutely want ours and others to survive the perfect storm transition (grandfathering, look back, education, trust) – many won’t. That’s business and I don’t think any legislator, ASIC or most of the voting public could care less about that. Government employees will never get, nor do they really care, what we do in our communities.
I bet the fact that the AFA has expressed its ‘strong reservations’ to ASIC/Gov’t has them shaking in their boots.
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