The Federal Government is set to implement legislation that will ban the grandfathering of investment and superannuation commissions by 1 January 2021.
In a joint release this week by Treasurer Josh Frydenberg and Assistant Minister for Superannuation, Financial Services and Financial Technology, Senator Jane Hume, the Government was effectively reinforcing pronouncements it made earlier this year, following the release of the final report of the Banking Royal Commission.
Recommendation 2.4 in Commissioner Hayne’s final report recommended:
“Grandfathering provisions for conflicted remuneration should be repealed as soon as is reasonably practicable.”
conflicted remuneration …can entrench consumers in older products even when newer, better and more affordable products are available
In February, the Government released its exposure draft legislation to ban the grandfathering of conflicted remuneration paid to financial advisers, arguing that this type of remuneration “…can entrench consumers in older products even when newer, better and more affordable products are available on the market.”
The Government’s rationale is that this reform “…will benefit consumers, as they will receive higher quality advice and stop paying higher fees to fund grandfathered conflicted remuneration.”
According to the joint release this week, the Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019 implements the Government’s response to the Final Report, to end the grandfathering of conflicted remuneration by 1 January 2021.
In confirming other action it previously said it would take, the Government is including in the legislation a power to make regulations to establish a scheme that will provide that those people paying conflicted remuneration should rebate clients for any remuneration that would be paid after 1 January 2021.
The Government says it has also commissioned ASIC to monitor and report on the extent to which product issuers are acting to end the grandfathering of conflicted remuneration.
The legislation is set to be introduced into Parliament on Thursday 1 August.
See also: AFA Challenges RC on Banning Grandfathered Commissions.
Surely some advisers will just simply move this cohort of clients into alternative products and having calculated what the “lost commission” is, simply charge an equivalent ongoing annual fee. Doubtlessly the annual fee will be explained away as being identical to what was being charged before.
The legislation will also encourage churn (just as stockbrokers do) as a way for some Advisers to get ‘renewal’ income
The mooted legislation is just giving advisers 16 months to do some laundry and hide the bodies.
legislative brilliance….who on earth is advising them.
Why not change to a fee for service model, no annual or monthly fees, send the client a detailed invoice for work done.
you pay for your groceries when you need them, you only pay the plumber when the work is done,
an accountant sends a bill.
This change will do nothing lol.
I agree with you. The point is often missed that this industry is about the client, and so it shouldn’t matter in what WAY we get paid, as long as we can still cover our business costs and make money for ourselves, congruent to what an adviser should earn (though this amount is debatable I guess). With all this attention on the legislated way to charge fees and disclose them, we often forget about what is more important – client acknowledgement and transparency. Perhaps our industry would be seen as having more integrity if we charged fees, such as you have suggested, similar to an accountant.
If we provide a valuable service to our clients, and the clients understand the process we go through to provide advice, and we have clearly demonstrated how we look after their best interests, we will never have a problem charging a fee.
I can confirm this from our own experience with running a fee for service model. Advisers forget how simple it is to pre-position fees, so that the client understands clearly – if they don’t want to pay a fee, we don’t do the work; if they want the work done, we charge a fee. It really is that simple.
Anon – Are the fees you charge for risk only, or do they include other advice/ services?
Here’s another thought.
What will any of you do when your ex clients don’t pay your agreed fee.
Sue them all ?
How many debtors can you carry ?
I know of one adviser who has done work for 3 new clients amounting to $18,000 and none are rushing to pay him.
One is MIA and the other two keep finding excuses.
A a great business to be in.
I think we will need to start charging a fee before we start like solicitors. If people will not pay at time of engagement then you will not be working for nothing.
only 3 ?? Its not an option for risk only clients I tried it too at the so called mentoring of an adviser { who shall remain nameless ?} that insisted he had no problem with the clients paying ? I think someone was having a lend of themselves. I tried a dozen different approaches and got paid by one and it was minimal at that The others have already moved onto another adviser { one who gets paid by commission I expect.} I have sent emails final notices you name it but they know we wont chase them its more expense then we can afford. And no one will pay upfront and I would not blame them.
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