ASIC has no hard data on grandfathered commissions

26 February 2019

The Australian Securities and Investments Commission (ASIC) has admitted it has no hard data on the extent of grandfathered commissions.

The full transcript of last week’s Senate Estimates has revealed that the regulator believes that the number of grandfathered commissions is reducing but that its own research amounts to nothing more nor less than a small sample of 20 licensees.

Answering questions from Queensland Labor Senator, Chris Ketter, ASIC’s senior executive leader in the Financial Advisers team admitted ASIC “don't have reliable estimates of the extent of grandfathered commissions”.

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“We know that they're reducing. We know that a number of institutions have unilaterally announced that they're turning them off. We've done our own research on a small sample, which would indicate that the amount of grandfathered commissions is now quite small,” she said. “But the sample we had was 20 licensees across various sectors, so I can't give you an absolute per centage figure.”

However, Bird said that ASIC would be monitoring how product issuers were turning off grandfathered commissions and who would ultimately benefit.

“We'll be asked to monitor how a sample of them are turning those commissions off and what steps they're going through to ensure that the benefit is passed on to their customers,” she said.

When Ketter suggested that ASIC did not have any estimates about the amount of money tied up in “grandfathered conflicted remuneration”, Bird answered “no”

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“....Given the recent press on the Royal Commission hearing in regard to the vertical integration of the big four Banks and their financial advisory businesses, and in particular the proposal that the grandfathering of benefits should be banned retrospectively (see Australian Financial Review 28 May 2018, p.18), RG 246. 212 makes the interesting comment:

“Note 1: The ban on conflicted remuneration also does not apply to the extent that it would result in an acquisition of property from a person otherwise than on just terms (within the meaning of s51(xxxi) of the Constitution).”

This comment would appear to lay the ground for a challenge to any legislation the Government might wish to introduce legislation seeking to outlaw grandfathered benefits – as was intimated by the ANZ in the AFR article. That is not to say that the High Court may form a different view as to whether or not a grandfathered benefit is ‘property’ within the meaning of s51(xxxi) of the Constitution.”

Legislate that the product provider purchase the 'property' trail from the practices and then have to rebate the trail to the clients account.
Clients benefit. Practices receive their 'sale' now and product providers incur some pain.

so no fully supportive numbers are available? just a sample? and the whole industry is shot down. A sample size of 20 certainly is not fully representative of the whole industry. How about some hard cold facts and numbers if they are not available maybe the grandfathered commissions cannot be taxed as they cannot be substantiated

So ASIC is making a decision/recommendation without a basis for advice? What alternative strategies have they investigated and why were they discounted? Wouldn't it be great to be able to make recommendations without actually doing any research and building a case in a statement of advice that would make you accountable.

Isn't this exactly what happened when ASIC had to admit that they had no real numbers in regards to churning which was the main reason used for the LIF changes? Changes which benefited banks and insurers, and punished clients and advisers.

ASIC is either incompetent or knowingly making decisions that benefit banks/insurers and punish clients and advisers. Based on previous actions does anyone believe for one second that the banks will rebate the grandfathered commissions to the clients? Further does anyone think ASIC is actually capable of finding out if the rebates do occur, and punish anyone (other than easy targets like advisers) when they aren't.

I've heard that product providers can use the commission for improvements to systems for members so i'd say the client will still pay the same fee and the provider will use the old commission money to update a system that can be easily applied to other parts of the business. Therefore saving them more money. At the expense of clients and advisers.

If you are an advisor on the gravy train of grandfathered and trailing commissions and were guaranteed payment, then why bother about going through the business of actually giving regular advice to the payer of the trailing commissions? Money for jam.
To ban such a nefarious practice doesn't require any evidence or proof as to whether there is one advisor or many advisors picking up the easy money.
There's nothing hard about having a schedule of fees for varying levels of service. That's what other professions do.

explain intra fund advice then for industry funds?

Hedware, I will use your argument with just a few words changed - and lets see if you agree.
If you are an (INSERT Industry Fund to REPLACE advisor) on the gravy train of (insert Inter Fund advice fees to replace grandfathered and trailing commissions) and were guaranteed payment, then why bother about going through the business of actually giving regular advice to the payer of the (INSERT all members being charged for inter fund advice fees to REPLACE trailing commissions)? Money for jam.
To ban such a nefarious practice doesn't require any evidence or proof as to whether there is one (INSERT Industry Fund or many funds to REPLACE advisor or many advisors) picking up the easy money.
There's nothing hard about having a schedule of fees for varying levels of service. That's what other professions do.

Have I made a good argument?

Don't go all shy on us now.

Dear Amon, misguided again due to your paranoia of industry funds. No way was I making an exception for industry funds.

How much does the industry funds pay you to write the dribble you do Hedware. So many people call you out on this website over and over again shows you have your own paranoia against advisers and retail funds.

I give advice on industry funds and its good for business I have no drama comparing five industry funds for a client that only wants to look at industry funds and giving them good quality cover. What is an industry fund adviser going to compare against anyone else no, once other advisers realize the great opportunity to give advice to these people

Your bias against advisers means you miss the point. How is the client better off if grandfathered commission is turned off? Many (not all) are currently getting advice, they won't when the commission is turned off. To top it off there is no guarantee that the commission will be rebated back to them, which apparently is the whole point of turning them off in the first place. I get you want to punish advisers but allowing super funds / banks / insurers to benefit at the expense of clients shows union fund disciples like you care very little about actual clients.

As I keep reinterating (repeating) I don't have any dealings with industry funds, and so not getting backhanders. But I do with retail funds and I would like them to perform better, at a lower cost and with due integrity. I would like the financial advice industry to grow up and become respected for giving reputable and professional services and for being recompensed without having to resort to bribes and sly fees. Not too much to ask.

Not too much to ask for?
Hedware, it is a very simple process to get retail funds to perform as well as an Industry Fund (which is I believe your comment "retail funds and I would like them to perform better, at a lower cost and with due integrity". All retain needs to do is de-list property and infrastructure in their portfolio, value it yearly and value it well (just enough to beat the competition which have visible listed assets) reclassify a property and infrastructure as a growth asset (just enough to confuse PCC, ASIC (and Treasury who should know better) and presto, you have a BALANCED investment option that can not fail - until it fails and it will. There is a term for this type of investment scheme as they have been tried before. Do you know what this term is? Why would profession Advisers put clients in this situation? You seem to be all for it and I wonder (I now think your in Treasury) what qualifications do you actually have?

All this has been explained to you many time by many people in this and other forums yet you simply do not see what is happening around you, you offer no sensible debate but your wealth of knowledge for motherhood statements is still to this day impressive.

You might be absolutely correct in your assessment of comparative performance as you seem to know about industry funds. I am just looking for better results from retail funds per se.

So tell me, how does banning/removing a commission payment (paid by the provider) help in your objective " I am just looking for better results from retail funds per se"?

The facts are, ASIC wants more compliance (hundreds of pages per client) and is pushing this on Financial planners now. This is OK but it will cost. At the same time, commissions are to be turned off - leaving a lot of clients in the position where it simply will not be viable to service many clients. Where do you think these clients will end up Hedware. Some might, and I might go to Industry Land but most will remain where they are - but with not adviser and a product manufacturer (Bank or AMP etc) to guide them in the future. Hell, Treasury will likely decide it is time to give some CGT and Centrelink grandfather relief to the likes of AMP so they can close all the old funds down into one new fund.

Could you think of a better way to HELP the retail funds? They will now have a model to operate under Inter Fund advice, offer super to individuals/employers without any upfront costs and recover the costs over the longer term.

Advisers who offered some competition will have large up-front costs for the individual.

Industry Funds still getting truck loads of FUM via Inter Fund advice (and some even offer Qantas points) and that charging model. General advice - really?

Please reconsider who it is you think you are helping.

It was a really simple question Hedware. How is the client better off? Why won't you address this? Is it because the discussion is more about a political play that benefits banks / industry funds / insurers and punishes advisers with no benefit to the client? Conflicts of interest occur in every industry, some of the worse offenders are real estate agents and doctors. If you are unable to understand this it explains alot.

When you buy a house through a real estate agent, does the agent get grandfather fees for the rest of the time you own the house? When you get treatment from a doctor, does the doctor get grandfather commissions for the rest of your life? I could keep listing examples but you must get the point - why should the financial advice industry be any different?
When people pay for professional services then they are doing so because they need the services and are prepared to pay for those services.
Other professionals have sliding scales for various services and that should not be too hard for the financial advice industry to implement.
There was enough comping out of the Royal Commission to demonstrate that grandfathering was not a good practice. Grandfathered commissions made financial advisors lazy and slack and gave a bad name to those who were ethical.
Other posts have pointed out the opportunities available to professional financial advisors. The sooner the complainers leave the industry then the better for those who take up the opportunity to add value to clients' financial positions.
Take the opportunity; grab the upside.

Hedware, so glad you brought up the Real Estate Agent example and Doctor. Lets discuss.
Estate Agent. I will use a simple example with only a 2% charge on sale for the Real Estate Agent. When the Agent is looking to sell a property, there are two main sale types. One, simple sale for a principle residence. Secondly, the sale where the buyer is looking to rent the place out. Now, remember the Agent is being paid by the seller and the Agent not only wants the sale, they may also want to be the letting agent (remember, Real Estate Agency's valuation is largely about their rent roll). So, is who's interest is the Agent acting?
Let's put some numbers to it for you as Brad Hodge asked AMP (Jack) why Financial Planner don't charge like Agents (perhaps we should).
Sale at $825,000 gives commission of $17,500.
Lease fees (Lease prep, Letting Fee and about 0.6% management fee on income plus Admin Fee) there are more but the example I am using conservative. Total fees on rent of $23,920 pa is $2,066.52 pa or 8.64% or another way, 0.25% pa on initial purchase price. I would love that sort of money and no responsibility, big numbers and no BID.

Doctors - well. that is an interesting example since we have Medicare in this country and I am assuming you will be using the same reasoning for them - if their service is so valuable then they should have no problem charging a fee. Hell, that didn't even work for Tony Abbott with $7 per visit.

So, if your example is so great, do it to everyone - and stop pretending Industry Super charge Inter Fund Advice Fees are not a simple form of commissions - they are.

I question the validity of constitutional challenge - of someone like Ken Hayne says that previous case law applies, he is probably right, and would take a push to the high court to get movement - something that is unlikely to be able to be driven by the adviser community. Having said that, the possibility still exists.

If they were to make grandfathered commissions subject to opt in, the issue would disappear. Those who are being legitimately serviced (especially those with products associated with centreline grandfathering rules) will continue to be serviced, the adviser paid for the work. Those who have no relationship will lose the revenue, just as they would under fofa opt in. Seems simple enough to me.

Sounds as though we may be heading towards full-on socialism. Venezuela a shining example

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