ASIC to Review Industry Action on Grandfathered Commissions

ASIC has announced it will investigate how the industry is progressing in the transition away from grandfathered commissions for advisers.

The investigation, directed by the Treasurer following the Government’s commitment to a 1 January 2021 end-date, will review the steps taken by industry participants from 1 July 2019 until the 2021 deadline to end the practice. 

The Government introduced legislation on 1 August 2019 to ban grandfathered commissions paid to financial advisers (see: Government Confirms Grandfathering Ban Date…), and the industry was quick to voice its concerns on the announcement (see: Deep Concerns Over Removal of Grandfathered Commissions… and FPA Warning on Grandfathered Commission Ban…)

ASIC stated it will investigate any impediments to the transition and the extent to which benefits are being passed on to affected clients.

It will conduct both quantitative and qualitative reviews. The quantitative study will involve a survey of entities known to pay grandfathered conflicted remuneration to Australian financial services (AFS) licensees or their representatives and require them under notice to provide data:

  • Initially for a 12-month period (from 1 July 2018 to 30 June 2019); and
  • Thereafter on a quarterly basis for the review period (for example, reporting for the period from 1 July to 30 September 2019 will be in October 2019)

The first notice to entities will be issued on the 21 August and they will be required to provide their responses via a web portal.

The qualitative review will include a smaller sample of entities that pay and receive grandfathered remuneration. This will involve more detailed engagement and analysis during the review period.

ASIC stated it will analyse the information from both reviews and report to the Treasurer by 30 June 2021 and the report will be released publicly.

The regulator expects to provide an update on its investigation to the Treasurer and industry as appropriate during the review period.

  • George

    All the attention by ASIC is removing the trail commission on products (which obviously comes from the planner). The trail commission is anything up to 0.5% and given that the fees for retail products are north of 2.0%, it still leaves the fees on the retail product at 1.6%. So the question that should be answered by ASIC is when they will require the retail product providers to transfer these old “high cost commission” products to low cost products? It’s a fair question that ensures that all stakeholders carry the burden of these necessary reforms. It is clear that if the retail product providers do NOT move these clients to low cost products could this action be considered CONFLICTED REMUNERATION?

    • GregF

      Exactly right. In addition to trail to advisers there were overrides to dealer groups, conference sponsorships etc built in to their fee. These payments are also meant to stop / be stopped, so where is this saving passed on to clients? In the whole chain of beneficiaries of the clients ‘fee’ – from the CEO of the company all the way down to the adviser – it is only our share that is in question. Why is that?

    • John Galt

      Guys you need to take a closer look at the actual financial results for these retail product providers for the last 5 years – up to and including the June 2019 report released by APRA yesterday.

      A combined loss on risk products of $272m for the June 2019 quarter alone. $535m for the March 2019 quarter.

      Over $5b in on-shore losses on IDI alone in the last 5 years.

      It would appear therefore that the only ones ‘sharing’ the burden are the manufacturers and shareholders – how many other ‘stakeholders’ are loosing billions?

      The clients are already on ‘low cost products’. So low they’re not sustainable. If you want your clients on lower cost products then advise them to take the simpler, cheaper and lower rated ones.

  • Matt

    What are they trying to achieve here? It is still a legal form of remuneration until the end of 2021 (and it may yet be challenged that it is still legal beyond that date). Is it to be seen to be doing something, to police a law that isn’t there, or just to put the wind up licensees?

    • Mark S

      After the RC spanking they got, ASIC are out all guns blazing at anything that moves. But yes, I think if they can get the product providers and licensees to push this through even before the legislation, then a legal challenge won’t matter. Some product providers are actively writing to clients telling them the trail can be rebated and just contact them if they want to switch it off from being paid to the adviser.

  • Ken

    There seems to be some almighty panic in this particularly buy our treasurer Mr Frydenberg to push this legislation through and well before the end of 2020
    Why ? Is it possible that this legislation may be “floored” and in some way a breach of corporate law or the trade practices act and someone might find out, challenge it and actually win proving them wrong
    Sorry but there is way to much interest being placed on this way to early
    I don’t suppose AFA or the FPA have had a legal look into this ??