Banks win from grandfathering ban, says industry body

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.

Adrian Flores

Adrian Flores is a deputy editor at Momentum Media, focusing mainly on banking, wealth management and financial services. He has also written for Public Accountant, Accountants Daily and The CEO Magazine.

You can contact him on [email protected].