It’s too simple to say that all old products are outdated and not in the best interest of the clients.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:
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:
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.
09 July, 2019
ASIC has made changes to the application process. Here's what you need to know.