AFA rebuts ISA grandfathering claims

2 May 2019

The Association of Financial Advisers (AFA) says it has been left completely confused by Industry Super Australia (ISA) suggestions that financial advisers will in some way benefit from a situation where clients are rebated grandfathered commissions by financial product providers.

Reacting to the ISA’s claims associated with a Treasury submission, AFA chief executive, Phil Kewin said his organisation was “completely confused by the ISA media release, which seems to be suggesting, without explaining how, that these regulations will provide some unreasonable advantage to financial advisers”.

“In our view this assertion is totally false,” he said.

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The AFA was so disturbed by the ISA’s claims that it set out a point by point rebuttal of the industry fund organisations statement:

ISA: Consumers will once again be left vulnerable to raids on their super accounts by financial advisers if a government proposal to allow grandfathered conflicted remuneration to continue goes ahead.

AFA: We can see absolutely no mechanism for how financial advisers could raid super accounts and do not agree with the statement that this has been the case in the past.

ISA: Industry Super Australia has strongly opposed the move in its submission to the Exposure Draft Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Regulations 2019.

Despite a clear recommendation by the Royal Commission that grandfathering arrangements should cease, the Government’s draft regulations effectively give an exemption for financial institutions to continue provisions for conflicted remuneration by allowing a rebate or monetary benefit scheme to be established.

AFA: We cannot see how the draft legislation and regulations that ban grandfathered commissions in any way allow the continued payment of conflicted remuneration beyond the date of banning.

ISA: Industry Super Australia Chief Executive Bernie Dean slammed the proposal and called on the provisions for conflicted remuneration to be repealed as soon as possible – in line with Commissioner Hayne’s recommendation.

AFA: The Royal Commission called for a ban as soon as practicable and not as soon as possible.  The reference to practicable is very much a different criteria in that it takes into account the practicality of what is required to implement such a substantial reform.

ISA: “Let’s not forget that grandfathered commissions remove money from consumers’ accounts without their express consent. This is akin to stealing money,” Mr Dean said.

AFA: Grandfathered commissions are paid by the product provider from the product fees.  Since 2003 financial advisers have been required to provide a Statement of Advice, including fully disclosing all remuneration.  Express consent was required and the suggestion that this is stealing is entirely misleading.

ISA: “This is money that would otherwise have been maintained, in a consumer’s account, and instead was siphoned off to pay financial advisers for nothing.

AFA: The commission is paid for by the product fees and would have been fully disclosed in the SoA and the PDS.  To suggest that this is paying for nothing as a general statement is incorrect as many clients advisers are delivering ongoing service to their grandfathered commission clients.

ISA: “To claim administrative inconvenience as an excuse to try and water down what should be a blanket ban on grandfathered commissions, is astounding given the disgraceful conduct that was exposed during the Royal Commission.”

AFA: We are completely unaware of what the reference to watering down is referring to. The only administrative inconvenience is that in cases where the product provider does not cease paying the commission, the adviser will be forced to refund it. This provides no benefit to the adviser. Additionally, there were no cases highlighted in Royal Commission that demonstrated disgraceful conduct by financial advisers with respect to grandfathered commissions.

ISA: “While some parts of the super sector will fight tooth and nail to keep grandfathered conflicted remuneration provisions – at the expense of consumers – our position is clear.

“We do not support a watering down of the blanket prohibition on grandfathered commissions. Any attempt to provide exemptions for conflicted remuneration will only erode consumer protections and leave consumers worse off.

AFA: We are completely unaware of any watering down that has been included in this draft legislation and regulations.  In our opinion this reform is being implemented too quickly and is failing to consider the full consequences.  Our concern is that there will be many clients who end out losing access to financial advice as a result and that this solution will be incredibly complex and costly to administer, resulting in inefficiency and ultimately client disadvantage.

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Well done to the AFA for calling out this nonsense. Serious question - Is it possible to sue an organisation or individual for defamation of an entire profession? Or is it only possible to defame an individual? Because these comments from ISA appear to be very misleading and damaging. I seriously wonder if it is time for the AFA (and FPA if they have a spine) to take on ISA on behalf of their members to end this constant barrage of nonsense leveled at our profession.

After 25 years of compare the pair and painting (all) financial advisers as greedy, shonky used car salespeople, I thought we've moved beyond this when David Whitely strategically exited the ISA during the Royal Commission hearings. The Industry funds have been playing much more nicely in the sandpit recently, either building their own advice channels or partnering with licensees to benefit their members with quality financial advice (and retain members through retirement which is where they lose most of their FUM). But this says,
'the Whitely formula worked, the regular men and women in the street don't question the facts and as long as we can make someone else look more conflicted and dodgy than we are, we'll win the land grab for the $3 trillion super bucket.'

The ISA is riddled with conflicts (how does funding the Labor party meet member best interest and the sole purpose test?) but they are clearly a protected species. They got the equivalent of a thrashing with a wet lettuce leaf during the Royal Commission and with the banks blowing themselves up and exiting wealth, their multi-pronged strategy of lobbying for the legislative and regulatory changes to benefit themselves and wipe out the SMSF industry (Labor's franking credit proposal is a perfect example), and retail and corporate superfunds, and the mass marketing to win the hearts and minds of the average worker have worked.

I would really like the industry funds to have to go through what a financial adviser has to in order to recommend a superfund to a client - FDS, fact find, research and analysis, SOA, replacement product information, PDS, implementation and administration, reviews, opt in, annual FDS. The cost post-RC will make it largely unviable for an adviser to assist mass market mums and dads (another win for the ISA). I have a good mate in the construction industry who has a SMSF and this is paraphrasing the conversation he had with the Shop Steward;
SS: "This is a union site"
Dave: "I'm a member"
SS: "You need an industry super fund."
Dave: "I don't want an ISF. I have my own fund and prefer property, not shares or managed funds."
SS:"You're not f*ing coming on site until you sign up for an industry super fund."
I'm guessing union shop stewards are better qualified to provide advice on super than financial advisers?

ISA just wants to kill off the competition as quickly as possible. Never let the truth get in the way of a good, emotive, piece of fiction. Stealing, raiding, very emotive words but not at all appropriate.

Couldn't agree more with Adviser's comments. In fact the respective representative bodies (AFA/FPA/AIOFP etc) should demand either public retractions from the ISA in respect to their biased and inaccurate commentary, or for ISA to provide factual information to back up their assertions. It is also very apparent that the ISA are attempting to divert attention away, or legitimise their own biased "vertically integrated" model on the back of some of the flawed assumptions and Hayne recommendations which have emanated from the RC. I also believe it is high time for ASIC to finally look into and scrutinise the Industry Funds advice model/processes, in the very same way they have the Retail fund sector., though I won't be holding my breath to be honest. Let us then see if the ISA/ISN assertions that "there is nothing to see here" is validated.

ISA do not understand that commission remuneration is just another way of clients paying for ongoing advice and service. Removing so called "Grandfathered Conflicted Remuneration" is not going to reduce the costs to the clients as the financial planners will simply rebate the commission and charge ongoing advice and service fees instead, which may end up costing clients more as our cost-to-serve has increased significantly in recent years. We are certainly not benefiting by clients receiving rebated commissions from product providers. Why should product providers be allowed to turn off commission payments to financial planners and not rebate them to clients? If this is allowed clients will end up paying both commission to the product providers (for no advice) and ongoing fees to their financial planners. This certainly is not in the clients' best interest.

I couldn't read past your line "ISA do not understand..."
FFS how naiive are you guys? After all this time and everything that has happened you still think you are dealing with ignorant fools? You deserve your business to be smashed out of existence. THEY DO UNDERSTAND AND THEY KNOW EXACTLY WHAT THEY ARE DOING!
Your post is a waste of everyones time.

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