Last week, we discussed how the Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019 seeks to "ban the grandfathering of conflicted remuneration paid to financial advisers" by 1 January 2021.
In a joint statement, Treasurer Josh Frydenberg and Assistant Minister for Superannuation, Financial Services and Financial Technology Jane Hume said the bill was necessary because grandfathered conflicted remuneration can incentivise advisers to recommend clients financial products that aren't in their best interests.
Despite supporting the phasing out of commissions on investment products, the Financial Planning Association has argued the bill is lacking in sufficient detail as to how this move will benefit consumers. FPA chief executive Dante De Gori explained: "Removing commissions must result in a genuine reduction in product fees or the rebating of the commissions to consumers, and we haven’t seen details of how the Government expects this will work."
De Gori noted that even if a planner stops receiving commissions, this doesn't necessarily mean the consumer stops paying them through investment fees. Because the cost of the commission is embedded in said fees, the FPA suggested retirees "could lose even more by giving up favourable tax and pension treatments on their existing investments if they are forced to move to new investment products, with the bill making no provision to prevent this impact."
De Gori also expressed his disappointment regarding the bill's short timeframe, saying it "allows only 17 months to complete a change that the FPA has recommended could take up to three years if the Government is to avoid unintended consequences for consumers, and the financial services ecosystem."
The Association of Financial Advisers also commented on the "rushed and simplistic" approach of the bill. AFA chief executive Philip Kewin said that even if removing grandfathered commissions is necessary, "[the bill] does not adequately provide a mechanism for exemptions where the client is better off in their current arrangement. We are also concerned that there has been no assessment of the number of consumers impacted by this measure.”
He continued: "The removal of grandfathered commissions is actually 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.
"There are numerous different scenarios with a multitude of different consequences. In some cases this might be straightforward for the financial adviser and their client, however in many thousands of cases there is a genuine risk that clients who are happy in their current product and receiving valuable ongoing financial advice and related services will either lose access to that support or be required to pay more to retain it.”
How will your business be affected by the proposed January 2021 ban?
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