It is always a worry when Governments implement legislative change at the same time as tacitly admitting that they do not entirely understand the consequences of that change.
Such is the case with the Government’s legislation, the Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019, which will bring an end to grandfathered commission-based remuneration from the beginning of 2021, although the Australian Securities and Investments Commission (ASIC) may or may not be able to provide some sort of detail some time later next year.
What Money Management research and that of a number of other organisations can tell us about grandfathered commissions is that, in this day and age, they represent between about 8% and 15% of adviser income depending on the shape of the financial advice practice concerned and the age of the planners involved.
In other words, the loss of grandfathered commissions was always going to be a bigger problem for older advisers than it was for younger entrants to the industry and this is something which has been reflected in research about adviser attitudes to the changes.
But what needs to be understood about the end to grandfathering is that it is not all about the advisers, it is also all about their clients and the nature of the products which were sold to those clients.
Will all clients currently involved in products generating commissions for advisers be the ultimate beneficiaries of switching off those commissions or will some of those savings simply end up back in the coffers of the product manufacturers? Questions also need to be asked about whether clients risk being placed at a tax or Centrelink disadvantage by being switched out of those products.
No one really knows with certainty how many clients will be affected and to what degree. However, the Government’s legislative package does provide that, where possible, product providers should ensure that adviser commissions should be rebated to the client.
Little wonder then, that advisers are asking why the Government did not go to the trouble of commissioning a Regulatory Impact Statement (RIS) before presenting the legislation for passage through the House of Representatives and Senate.
The complaints of these advisers appeared to be made even more valid when ASIC told the Parliamentary Joint Committee on Corporations and Financial Services that it had only begun doing a deep dive on grandfathering following an ASIC Act referral from the Treasurer, Josh Frydenberg, last month.
It appears that prior to Frydenberg’s referral, ASIC had been basing its views about grandfathering on some sample research undertaken in about 2017 and, to some extent, on research undertaken by the Productivity Commission (PC).
Putting aside whether there exists a moral justification for extending the phase-out of grandfathered commissions, it seems that the Government has moved to end the regime without any seriously confirmed data and without going to too much trouble to determine whether there might be unintended consequences.