In a submission to Treasury, the Association of Independently Owned Financial Professionals (AIOFP) said grandfathered revenue is a lawfully obtained, contractually agreed method of adviser remuneration with respect to advice given before 1 July 2013.
According to executive director Peter Johnston, many advisers legitimately rely to some extent on those payments.
“If the payment of grandfather revenue is abolished it will produce a windfall gain for some parties at the expense of advisers,” he said.
“The parties who obtain the windfall gain are the parties who designed and implemented products that feature now outlawed forms of remuneration.”
The AIOFP noted that despite the Future of Financial Advice legislation, the Australian financial services industry still has severe conflicts and fundamental legal/regulatory flaws that will continue threatening the security of client savings unless they are comprehensively addressed.
In outlining its recommendations, Mr Johnston said all three issues of grandfathered revenue, vertical integration and SMSF/direct property need to be addressed simultaneously.
He added that said institution must compensate each adviser for their grandfathered revenue.
“If [this] does not eventuate then the grandfather revenue must be given back to the consumer in the form of a mandated increase in return equal to the saving achieved by the institution having obtained immunity from any claim for the payment of grandfathered revenue,” Mr Johnston said.
In addition, the AIOFP recommended that institutional vertical integration models can no longer cross subsidise their advisers and that adviser investment recommendations to clients are closely analysed by third parties with best interests scrutiny in mind.
Finally, it believed SMSF advisers should no longer offer direct property to clients and the adviser’s financial affairs be subject to regular audits to detect “banned” property developer commission payments.
“If [the recommendations are] not feasible, then the compensation regime for rebated fees should be spelt out in legislation and not subject to a complicated discretionary regime set out in regulations,” Mr Johnston said.
If advisers are not able to charge asset based fees (commissions) why are the fund managers able to charge asset based fees (also commissions).
Craigo customers don’t pay, really? Have you compared the costs of funds paying commissions versus wholesale funds?
Ever since Fofa was introduced, the writing has been on the wall the commissions would die eventually, we’ve all had enough time transition clients to transparent fee for service arrangements.
Turn off the commissions, pay no compensation to lazy advisers who have their clients in these rubbish products and do it ASAP
I cannot believe that the AIOFP is directing FP to join the FSU – this is like jumping in to bed with the enemy – Labour and the Unions want all Super contributions to go in to the Industry Funds and the body that represents you is giving you this advice??? – there lies your problem – your Industry Body is out of their depth and not representing you – its as simple as that. I can guarantee that neither the FPA nor the AIOFP are pushing back on all the paperwork that FP are being asked to do – seems that they are more than happy to collect their membership dollars and not do a thing that is supportive of you????
what about CPD audits asic.
are you going to do them. you need to ban AR’s for not doing their CPD.
we need to do 60 hours this year. can you please audit everyone to ensure they have done 60 hours.
So in the Australian last week another director of the AIOFP stated “Grandfathered trailing commissions are an odious relic from a bygone age” and that “while grandfathered commissions continue, there will be a cloud over the profession and questions raised as to the honesty of every financial planner in the country”.
The AIOFP has similarly called upon advisers to join the FSU: https://www.aiofp.net.au/financial-advisers-join-forces-with-union-movement/ despite the fact that the FSU in their response to the RC Interim Report stated that both grandfathered and life risk exceptions to conflicted remuneration should be eliminated throughout the sector see here: https://financialservices.royalcommission.gov.au/Submissions/Documents/interim-report-submissions/POL.9100.0001.1035.pdf
I am confused with this but there must be a credible reason for this given the credibility of this organisations past and present leadership team….
Agree with the comment below that industry bodies need to bring everyone together with one voice though there are unfortunately some smaller sections of the industry in which planners may be better served by excluding them..
Sorry to take this off track but the mortgage broking industry did bugger all lobbying. They were just lucky to dodge a bullet. All they had to say was that the removal of commissions would reduce competition against the banks. It was politically expedient for Freydenberg to concur, rather than hand a free kick to Labor by supporting the banks.
I cannot believe the rubbish that continues to flow from Planners and it has been the same for the past 10 years. I would suggest you take a look at what the Mortgage brokers have been able to achieve in a very short time in relation to their industry.
All i have hear and continue to hear is who is better – Bank Planner v IFA, then its the banks v planners – rather than making a decision to work collectively for a mutual beneficial outcome – its a dog eat dog mentality with the Industry bodies doing nothing to bring everyone together with one voice
They will also make profit on the interest of these loans that have to be paid back. All the royal commission has done is benefit the major instos
Re Grandfathered.
Solution: The insto’s pay the advisers 3 times for the trail and basically buy it back. Anyone who has purchased a book or has loans can then either get their money back or pay down the debt. In 3 years, it is mandated to be turned off or 100% rebated to client. Problem is then solved Grandfathered commission now finished in 3 years time and no one is shafted !!
After forty years in the business they are going to grandfather my commission over the years of paying tax on my trailers can I now apply for a refund for the taxes I have paid
ummm what do you think the Royal Commission was really about? 4 big boys in a room with Mr Turnbull deciding who they can screw to increase their market share…
Completely agree with the SMSF comments.
The longer feet are dragged by the instos, the less they’ll have to do. They’ll just throw their hands up at the drop dead date and claim they can’t do anything.
This is why they aren’t jumping to provide a solution or compensation. It would be simple to pay out 2-3yrs of commission today and say that is it. Alternatively let it run another 2-3 years so advisers can move the funds out, recoup what they may have spent (in good faith) buying clients. Doing this in an orderly fashion without clients losing out or collapse of businesses would surely be much preferred. Remembering that only 12 months ago grandfathered trails were traded at 2-3 times – and LEGAL
It has always been the little guy who suffers 🙁
agreed with comments re SMSF and property. Probably the first industry body to say so. Shows how fragmented the industry is and how everyone is just looking after their own interests, everyone but the customer. Lastly, grandfathered commissions. Flogging a dead horse their mate. The money for jam is over. the money for nothing is cooked. Agreed though, product providers should reduce fees on products for a good portion of the value of comms. Got to be careful at the profitability of product providers as well. Margins are squeezed tight. The focus should be on squeezing Fund Managers. They stay out of the advice game while ripping the investors with unfair fees.
Just force a buyout from product providers at around 2-3% of ongoing revenue based on the current balance. Make them take the hit as they have been the ones rorting the customers for years.
Exactly… the customer is no better off or worse off from trail commission AS THEY DIDN’T PAY IT in the first place. The contract between issuers and advisers is to pay it – that was the agreed form of payment SO THAT CUSTOMERS DIDNT HAVE TO PAY FOR IT. FoFA and Hayne RC dont understand the industry. The BANKS & INSURERS ARE THE WINNERS from all reviews as THEY DONT PAY ANYONE NOW, DONT REDUCE PREMIUMS FOR CUSTOMERS, BUT EEP IT FOR THEIR SHAREHOLDERS. Well played Financial Services Council… and shame on the FPA, AFA etc for letting the industry die (unlike mortgage brokers, who appear to have the best representative body ever)
Well said, Mr. Johnston.