Should ASIC Take Action on Grandfathered Commissions?

5
Should ASIC take action against ‘orphan commissions’?
  • No (55%)
  • Yes (38%)
  • Don't know (6%)

Our latest poll follows a challenge from the industry super funds network to the Australian Securities and Investments Commission (ASIC) to investigate the cost of ‘orphan commissions’.

Industry Super Australia (ISA) has called on ASIC to investigate how the grandfathering of sales commissions under the Future of Financial Advice (FoFA) regime will benefit financial institutions (see: ASIC Challenged to Investigate Orphan Commissions). The ISA believes that commissions on products which are not paid to financial advisers are being retained by financial institutions, to the detriment of advisers and consumers.

“In our view it would be unconscionable to extend the grandfathering of commissions, a process which will ultimately erode the savings of Australians, including compulsory super, if the commissions were not even to achieve their intended purpose of assisting financial planners, but were instead used to bolster the profits of the major banks and financial institutions”, said ISA CEO, David Whiteley.

While the ISA has been very vocal in its opposition to the Government’s proposed FoFA amendments, we want to know whether advisers believe there is merit in their latest argument – that orphan commissions should be rebated to clients and not retained by financial institutions.

We want to know what you think about this issue. Do you believe an investigation is warranted? How would you define ‘orphan commissions’? Is the issue significant or do ‘orphan commission’ accounts represent only a small percentage of the financial products held by Australian consumers? And if ASIC were to take action, is rebating the commission back to the client the best option, or should financial advisers receive the benefit?

Share your comments below…



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5 COMMENTS

  1. “Orphan” commissions, where the client does not have access to any ongoing service from an adviser, and an adviser is not receiving any ongoing revenue for providing this access, probably should be rebated to clients. But this is not necessarily the same as “grandfathered” commissions.

    Grandfathering can apply to situations where a client is receiving valuable ongoing service from an adviser and paying for it from their product fees. This is often far more convenient and cost effective for clients than being invoiced every time they access any service.

  2. Of course they should be rebated back to clients. This is one of the concerns about commissions, insurance commissions included. If a client takes out insurance with an adviser with built in commissions and then decides they no longer wish to engage that adviser, or in fact any adviser (which is of course their choice), the insurance company now benefits at the expense of the client which is wrong. Same for orphan commission relating to investments.

  3. Instead of allocating “orphan” clients to experienced advisors who could give proper advice and service to such clients, Insurance Companies have always been paranoid about NOT doing so. Hence, there are literally hundreds of thousands of clients in this category and if insurance companies are going to continue with this “strategy” then absolutely, the commissions should be rebated.

    • Peter is correct but Insurance companies will never hand out those orphan policy holders to an experienced Adviser to service as they need and use them to finance new Advisers into the industry.

      Generally they are small balance Super clients, who over the term of their small Super fund will have 5-8 Advisers living of their fund balance –by way of renewal commission paid from their account balance.

  4. A large number of policy holders, especially those with Super fund balances of less than say $3000 have renewal commission taking out of their fund and never receive any advice at all.

    Some of these orphan policyholders have had 6 or more advisers assigned to them by Life Insurance companies since taking out their small super 20 years ago to help establish a new planner who takes the service commission but never sees the policy holder.

    When he or she fails in the industry the Insurance company just transfers the renewal commission to the next trainee adviser.

    This is wrong and policyholders should have some option of getting out of this treadmill by Life Companies using the clients own retirement money to finance new advisers into the industry.

    David

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