Government proposals to rebate grandfathered commissions to clients via product providers would represent a significant abrogation of one of the key recommendations of the Royal Commission, according to Industry Super Australia (ISA).
In a submission filed with Treasury commenting on the proposed legislative changes, ISA said that Commissioner Kenneth Hayne had recommended that the grandfathering provisions for conflicted remuneration be repealed as soon as reasonably practicable.
However, it said the Government’s legislative proposals “basically provide an exemption to the blanket prohibition by allowing a rebate/monetary benefit scheme to be set up (as well as record keeping obligations)”.
“ISA does not support the proposal set out in the Exposure Draft relating to the provision of a rebate or monetary benefit,” the ISA submission said, adding: “Despite universal political acceptance of Commissioner Hayne’s recommendation that grandfathered conflicted remuneration for financial advisers should cease, the proposed regulations allow conflicted remuneration to remain payable after 1 January 2021”.
“The proposed regulations are completely at odds with Commissioner Hayne’s recommendation,” it said.
In a media release attaching to its submission, ISA claimed “consumers will once again be left vulnerable to raids on their super accounts by financial advisers”.
ISA also argued that rebating the grandfathered commissions to clients was flawed because it did not achieve an end to commissions “an in fact the arrangements which underpin the allowances being made will be complex and likely to give rise to different interpretations”.
“There is a real risk that consumer harm will eventuate and that the same circumstances might not produce the result that a reasonable person would expect, as we saw through the Royal Commission case studies,” the submission said.
“It seems that this is another example of poor decision making and a refusal to acknowledge that consumers will be negatively affected by the proposed rebate/monetary benefit scheme,” it said. “Allowing product issuers to avail themselves of a rebate/monetary scheme which can incentivise advisers to continue to recommend that clients remain in existing commission-based products undermines Commissioner Hayne’s recommendation. The weakening of consumer protection can only cause harm at both an individual and industry level. “