Just days before the Government moved to pass the Ending Grandfathered Conflicted Remuneration Bill through the Parliament, the Association of Financial Advisers (AFA) has lamented the manner in which advisers had been inadequately consulted and stood to be disproportionately disadvantaged.
The AFA has also complained that product providers have been placed at an advantage to advisers amid an “underlying assumption that financial advisers can either convert clients within their existing products to Adviser Service Fee arrangements, or can move them to alternative products”.
It said the Bill provided no flexibility for financial advisers, “however it is apparent that there have been some material changes that have been made since the draft, which will presumably serve to benefit product providers”.
“We are very concerned about the lack of explanation of these changes,” it said.
In a letter to members, AFA general manager, policy and professionalism, Phil Anderson expressed concern that the Government had moved ahead with the legislation without listening to the arguments of planners and without taking account of likely significant client disruption and detriment.
Further, the letter makes the point that the legislation has sought to remove key adviser protections contained in Section 1350 of the Corporations Act which provides for compensation to be paid to small business financial advisers where product providers unilaterally vary the terms of existing agreements in a manner that is in breach of contract.
“The fact that the Government is choosing to remove the applicability of this section, is in our view, an acknowledgement that there is the potential for constitutional issues with respect to the acquisition of property on other than just terms,” it said.
“For us, the biggest issue with respect to the removal of the applicability of Section 1350, is that the Government is removing the rights of small business financial advice firms in order to protect the interests of predominantly large business financial product providers.”
The AFA accepts that all sides of politics are determined to see an end to grandfathered commissions, however it is important that this process is pursued on the basis of detailed consideration of the evidence and the consequences for clients and the financial advice sector.