Will the end to grandfathered commissions impact the remuneration regime of planners?
There has been ongoing debate as to what extent the Royal Commission’s final report recommendations, and the end of grandfathered commissions in particular, would change business models for financial planning groups and individual advisers.
Money Management conducted an online survey in the days following the Government’s announcement that it would back the switch-off of grandfathered commissions in 2021 to capture the sentiment of financial planners, and discover their expectations post-Royal Commission.
The respondents, of which 91 per cent were financial planners, were asked to assess to what degree Commissioner Hayne’s final recommendations would impact their businesses and how they expected this decision would translate into their future revenue streams.
Survey highlights
According to the survey’s results, only 30 per cent of respondents said that the ending of grandfathered commissions alone would prompt them to leave the advice industry.
However, planners remained more divided when it came to assessing how a combination of switching off grandfathered commissions and the new Financial Adviser Standards and Ethics Authority (FASEA) education regime would affect their business decisions. In this case, the survey found that more than half of respondents (52 per cent) admitted that the combination of these two factors might see them leave the industry while, for the rest, an exodus remained still highly unlikely.
Money Management also asked its readers to what degree their businesses’ yearly turnover might be affected by the end of grandfathering. The results showed that for half of them the end of grandfathering would remain insignificant and impact less than 10 per cent of their yearly turnover.
However, around 13 per cent of those surveyed admitted that scrapping grandfathered commissions would affect more than 60 per cent of their yearly turnover and another 13 per cent said that such a decision would impact around 20 per cent of their revenue streams.
According to another 11.5 per cent of respondents only 30 per cent of their annual turnover would be hit, with a further 10 per cent of respondents saying that such a decision would translate into 40 per cent of their turnover being hit by these recommendations.
Additionally, the survey found that 45.5 per cent of respondents believed that the proposed 2021 end-date for grandfathering would erode their position on buyer of last resort.
The respondents also provided Money Management with a number of indications regarding where their future major revenue sources might be coming from.
The study confirmed that the end of grandfathered commissions would see planners bracing for flat fee-for-service, with some life/risk commissions as their main new remuneration stream after 2021.
At the same time, planners said they did not place high hopes on asset-based fees and did not expect these would be their dominant revenue streams under the new regulatory regime.
The study also reiterated Money Management’s earlier findings that the main driver for the majority of planners who considered departing the industry was the new FASEA regime.
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