For most of the past two decades the financial services industry has been lobbying successive Federal Governments to put in place the legislative changes necessary to allow the exit of clients from ageing and, by definition, out-of-date legacy products.
The very existence of the post-Future of Financial Advice (FoFA) grandfathering arrangements were owed in some measure to the continuing existence of legacy products and the punitive tax environment entailed in facilitating the exit of clients from these products.
Notwithstanding the clear desire of some financial services companies and operatives to cling to the trailing commissions attaching to these legacy products, there is nonetheless the reality that they were also constrained by two decades of Government inaction on changing the tax and other settings applying to the products.
It should therefore surprise no-one that at least some of the criticisms directed towards financial services companies at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry related in part and sometimes in whole to those legacy products and their consequences.
Thus, while the Minister for Revenue and Financial Services, Kelly O’Dwyer has been quick to express dismay at the findings of the Royal Commission, she and her predecessors must accept their own measure of blame. Quite simply, the Turnbull Government and those that have gone before it have not done enough to address the question of legacy products.
And it is not as though the Government has not been aware of the legacy product issue, with groups such as the Financial Services Council (FSC) using its pre-Budget submissions over the past decade or more to point to the cost of legacy products and their impact on clients.
As FSC chief executive, Sally Loane, said in March, last year: “Surely, in 2017, the government can progress and implement a product rationalisation timetable soon. It’s only been 15 years in the making.”
But, of course, the Government has not really made any headway with respect to product rationalisation and it is a bit rich for O’Dwyer to wash her hands of the impact this long-term inaction has had on the industry and the manner in which financial services companies have had to do business.
The Government has seen fit to throw millions of dollars and extra resources at the regulators while ignoring the structural flaws created by leaving a myriad of legacy products in place – at least some of them dating to the 1970s.
The problem of legacy products has been known to the Government via successive inquiries, including the Financial System Inquiry (FSI), for years. The Royal Commissioner, Kenneth Hayne, will very likely reference the problem of legacy products in his final report.
Knowing there is a problem and doing nothing about it makes the Government culpable.
