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.