September 17, 2019
Will the ending of grandfathered investment and superannuation commissions have a significant impact on the future viability of your advice business?
- Yes (69%)
- No (25%)
- Not sure (6%)
The ending of grandfathered investment and super commissions is a mess. While there may be commitment from the Government and the industry to address conflicted remuneration – for all the right reasons – its execution seems to be mired in a big bowl of porridge.
Rarely has it been more appropriate to reflect that the devil is in the detail…
Rarely has it been more appropriate to reflect that the devil is in the detail when it comes to actually applying the processes that will bring conflicted investment and super commissions to an end by 2021.
It’s been implied in PJC hearings last week that ASIC made recommendations to the Banking Royal Commission to end grandfathered commissions without having undertaken the necessary due diligence that may have flagged the significant issues surrounding the ending of grandfathered commissions (see: ASIC Grilled Over Due Diligence…).
Some of the questions raised by the AFA alone have demonstrated the complexity in understanding – and then unwinding – grandfathered commissions and the products in which they reside. Those questions include:
- How many clients hold accounts that are subject to grandfathered commission arrangements?
- How many of these clients are currently receiving advice or services from their adviser and wish to retain their existing arrangement?
- What is the total amount of invested funds in these products?
- How many product providers and how many financial advisers are impacted?
- What is the total amount of annual payments for grandfathered commissions?
- What is the total amount of annual payments of volume bonuses and shelf space fees?
- To what extent does this include payments with respect to life insurance held through superannuation via a group life arrangement?
- How many of these clients are in products where adviser service fee functionality is currently available, versus not available?
- How many clients are prevented from being moved to another product due to factors such as exit fees, capital gains tax, Centrelink grandfathering, insurance or the cost of financial advice involved in the facilitation of moving?
- What is the contractual basis of these payments and what is the mechanism by which they might be turned off?
- How many contracts between product providers and financial advice licensees need to be renegotiated?
- What is the implication for the age pension benefits of a client who might receive a grandfathered commission rebate payment, particularly where it is in relation to a lifetime or immediate annuity product?
Best wishes to the Government, the regulators and the product manufacturers in sorting these questions, as we spare a thought for the thousands of advisers whose businesses are to be impacted by the end of grandfathered commissions.
How will this impact you and your business? If you’re a risk-focussed adviser, the answer may be that you’ll be impacted to a lesser extent. But as the greater proportion of advice businesses deliver either holistic advice propositions or pure financial planning, the majority may be impacted more extensively.
While we don’t know as yet whether there will be pragmatic accommodations made to existing arrangements that will allow a smoother transition away from grandfathered investment and super commissions – and we hope these accommodations will be made – we’re still keen to know how the overall end to this form of conflicted remuneration will impact you and your advice business.
Tell us what you think and we’ll report back next week…