September 17, 2019
ASIC has been grilled by the Parliamentary Joint Committee on Corporations and Financial Services over what was implied to be its failure to clearly articulate the complexities – including the human costs – associated with the ending of grandfathered commission payments.
The passage of legislation early last week through the House of Representatives to end the payment of grandfathered conflicted remuneration to financial advisers (see Grandfathered Commissions Ban…) was followed by a PJC hearing at the end of last week, during which a spotlight was shone on the many and varied issues associated with the ending of grandfathered commissions.
During the ASIC Oversight hearing before the PJC, ASIC’s Chair, James Shipton, was questioned by PJC Coalition MP, Bert van Manen, on the effective due diligence the regulator undertook before making a recommendation to the Banking Royal Commission in the Round 2 (Financial Advice) hearings in May 2018 that “…ASIC believes that the grandfathering of commissions should cease as soon as reasonably practicable and to the maximum possible extent.”
During exchanges with Shipton, van Manen, implied:
- ASIC recommended the banning of grandfathered commissions without having done any serious work to understand the extent of the issue
- ASIC had failed to include any reference to the significant complexity of the matter
van Manen directed the ASIC Chair to the regulator’s statement, released last month, which announced it would be investigating the progress of transition away from grandfathered conflicted remuneration arrangements (see: ASIC to Review Industry Action on Grandfathered Commissions):
…it’s quite clear …that you haven’t done the work to actually understand what level of grandfathered commissions are in the system
“But it’s quite clear, from the remainder of that press release and the fact that you haven’t done the work to actually understand what level of grandfathered commissions are in the system or what level of revenue is being paid to advisers, that you actually, at this stage, appear to have no idea of the impact on your comments in your submission on the industry,” said van Manen.
In response, ASIC Commissioner, Danielle Press, said last month’s press release was in response to a direction from the Treasurer that ASIC investigate and identify these matters. However, in stating ASIC was seeking to get information back from industry on these questions, van Manen asked “…but surely you should have done this work prior to making these statements in your submission to the royal commission?”
ASIC Executive Director Wealth Management, Joanna Bird, noted the regulator had done earlier work, but which wasn’t as comprehensive as the work it was doing now.
ASIC was also questioned about the potential human costs associated with the end to grandfathered commissions. In an exchange with the ASIC Chair, Liberal MP, Celia Hammond, in noting the lack of detail around the call to end grandfathered commissions contained in ASIC’s submissions to the Banking Royal Commission, asked:
“I think the impact that those changes have had was understated in the submission made to the royal commission. Perhaps it was not fully known at that time, but we know that the changes are having significant impact on people’s livelihoods and people’s lives, so we request, if it is possible, for you to prioritise that work and do it as quickly as possible.
…these are real people. These are people’s livelihoods, and we are cognisant of that
“That emphasis is certainly well understood, and you highlight a very good point that we are cognisant of—that these are real people. These are people’s livelihoods, and we are cognisant of that. As I have said in my earlier responses, we are very open to hearing further submissions and further engagements, but that point of emphasis is important, and we certainly take that on board.”
Another line of questioning at last week’s hearing focussed on the potential risks associated with unintended consequences from structural change, including the decline in access to, and affordability of, financial advice.
In acknowledging both these consequences were seen by ASIC as issues that required monitoring, Commissioner Press noted ASIC was ‘…doing a piece of work next year around unfilled advice needs, which is going to take into consideration the changes that we’re seeing within the system today and really looking at: what advice do Australians need, when do they need it and can actually access it?”