The Association of Financial Advisers (AFA) was right to open talks with Treasury officials around the status of grandfathering when planners move between one licensee and another.
AFA chief executive Brad Fox quite correctly asserted that the grandfathering provisions, as being currently interpreted, suggested that if a planner changed licensees and took his clients with him then the previously grandfathered commissions would cease.
He said that the interpretation, if it was allowed to stand, would be highly anti-competitive and run counter to what were supposed to be the underlying objectives of the Future of Financial Advice (FOFA) changes.
“It simply does not make sense to impose something like this, which has the effect of freezing the marketplace and of disadvantaging new or emerging licensees,” he said.
However, the reality confronting the AFA and other financial planning organisations is that they are unlikely to extract any change in Treasury thinking before the upcoming Federal Election – and even if the Coalition were to assume power, there are no absolute guarantees.
In simple terms, the financial planning industry needs to recognise that while constitutional and legal implications made it difficult to legislate for an end to trailing commissions, it was always possible to put in place a legislative framework which acted as a trigger mechanism – that is the new grandfathering regime.
The industry can be sure that both Treasury officials and the advisers working inside the office of the former Minister for Financial Services, Bill Shorten, knew exactly what they were doing when they oversaw the drafting of the relevant sections of the FOFA legislation.
What is more, it is inconceivable that the Australian Securities and Investments Commission (ASIC) did not fully understand the minister’s intentions when it developed the consequent regulations and guidelines.
The bottom line for the planning industry is that failing everyone standing still for an extended period of time, planners will not be able to avoid pulling the trigger on the commission streams which existed prior to the FOFA implementation date.
Whether the Financial Services minister in a newly-elected Coalition Government sees fit remove the trigger will depend on the quality of the arguments the planning industry chooses to mount, but it is certain that the critics will then argue the minister is guilty of turning back the clock and endorsing the validity of trailing commissions.
The financial planning industry has broadly accepted that, ultimately, all commissions will become a thing of the past. The FOFA grandfathering provisions appear to be simply hastening that day.
