The flaws of the grandfathered commission debate

Paul Tynan,  CEO,  Connect Financial Service Brokers

It’s too simple to say that all old products are outdated and not in the best interest of the clients. There are many different issues regarding legacy products that need to be reviewed before transferring or recommending a client transfer to a new product.

Problems could include:  

  • Taxation and social security impacts
  • Underwriting and insurance issues
  • Withdrawal penalties
  • Legal concerns
  • Estate planning issues

The trail commissions on these legacy products were incorporated into their design to remunerate the adviser for their advice - it was not part of an ongoing advice arrangement.

What has caused many of the bad advice practices being highlighted at the Royal Commission has been driven by industry business models and product providers who have caused a misalignment between planners’ advice and clients’ best interest.

This has been allowed by successive governments, ASIC and institutions because of the honey pot of superannuation.

FoFA brought the planners and clients interest into alignment; however, ASIC and government continue to only listen to the failed captains of industry who put flawed business structures in place to serve their own self-interest. For example: Vertical Integration; Buyer of Last Resort (BoLR) and Dealership Licensing.

These three practices have been responsible for driving a wedge between clients and advisers.

Don’t blame advisers for trail commissions when they were a part of the product design and the only product available to satisfy client needs. Trail brokerage in these products did not constitute an ongoing service arrangement.

Legacy products are not a new issue but they will continue to be a huge problem going forward as technology moves faster than regulatory and business models.

Banning commission retrospectively fails to acknowledge that individual advisers have borrowed to acquire businesses and client registers to underpin commercial expansion on the assumption that trail commissions would be continued to be paid for the life of the individual policies.

If the product manufacturers want to ban grandfathering, are they going to:

  1. Buy back the trail commission from the adviser at a commercial market value
  2. Pass on the trail commission value back to the clients
  3. Help advisers facilitate the transfer to new products which would require a case by case evaluation and to undertake this task would require contacting and discussing the matter with each and every single client, issuing a SoA and so on.

Advisers have worked in this industry in good faith for decades recommending products to protect the financial aspirations and concerns of Australian consumers.

In addition, they have built their advisory businesses, employed staff and contributed to their communities and national economy based on the products that they were authorised to market and allowed to use in good faith.

The ramifications of banning grandfathered commission retrospectively and resultant loss of faith and confidence in the financial services industry, institutions and government is a cost far greater than any benefit derived from this action.

The opinions expressed in this content are those of the author shown, and do not necessarily represent those of No More Practice Education Pty Ltd or its related entities. All content is intended for a professional financial adviser audience only and does not constitute financial advice. To view our full terms and conditions, click here.

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If banning grandfathered trail commissions were to proceed, it would then be appropriate for affected advisers to form a class action against ASIC and government.

Frank Starvaggi


Being in the industry for 30 plus years , and in that time we the adviser perform a multitude of ongoing tasks. for example clients call for tax statements , meanwhile we liaise with their accountants and other professionals. I spend hours weekly performing admin for many clients and for no charge, hence I would say the renewal commission that the insurance company pays was to assist and look after the needs of our clients and issues and talking with them with any queries they may have. Now moving forward do we start charging fees to clients ? LIKE other professionals . Obviously the professional standards are forever improving and fees will be charged to clients. My main concern is that the Australian public is under insured and I feel this will not improve. Always here to help my client and ask them to give feedback. After all we deal in life and life is a precious commodity in looking after our families and businesses with passion.

Michelle Summers


This is exact comment I was going to say responding to an IFA article recently but I got sidetracked with client work. I, like others, have paid for trail at commercial rates - where is the compensation for this? It is bad enough that we have exams to do and uni degrees or education requirements to meet. Now the trail as well? I find the people making these rules are just looking to either be seen as doing the right thing - which is just the spin they are putting out to the public or they gain to make a lot of money eg: Asgard keeping the trails or Uni's making money on courses. If my Masters of FP isn't good enough - I want my course money reimbursed as well because I did what was available at that point in time. People in the accounting firm I work in are shocked at what our industry is going through.

John Schofield


Where is the cost/benefit analysis? What are the gains to Australia and what is the loss to Australia? There is a cost to every public policy. What are the costs and gains? No partisan of retrospective banning has dared to even start an honest discussion of the costs and benefits. Therefore it is reasonable to suspect that secret incentives are available for some players, and those players cannot justify those secret gains in public. It is reasonable to suspect that some people want to profit at the expense of others. I suspect the proposal is intended to damage the self-employed financial planners because the ALP would benefit financially from getting rid of us.

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