AMP Limited has defended grandfathering and has suggested to the Royal Commission that removal of them may constitute retrospective legislation and may capable of constitutional challenge.
In a submission responding to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry first round hearings on financial advice, AMP responded to the questions around grandfathering by pointing that pre-existing trail commission had been left in place for good reasons.
“Following discussions with the Minister at the time and as the legislation was being considered by the Parliament, a careful decision was made to retain pre-existing trail commissions for the following reasons:
- that reforms in general must be forward facing. Retrospective legislation is a fraught issue;
- Parliament generally cannot alter existing contractual obligations and may face constitutional issues should it try to do so. Banning pre-existing commissions could fall into this category; and
- over time the grandfathered arrangements involving commissions will reduce as customers are transitioned to a post-FoFA arrangement as appropriate.
The submissions aid that AMP considered that the reasons remain compelling and that the grandfathering arrangements provided for in the Future of Financial Advice (FoFA) arrangements should remain in place.
“It should be noted that grandfathered commissions are a payment, factored into the price of a product at the point of establishment and are a payment between a product manufacturer and the adviser who placed the product,” it said. “Their existence does not then mean poor quality advice or substandard customer outcomes will result.”
“AMP is of the view that safeguards implemented at the transition points create a robust framework (e.g. legislated Product Replacement Tests as part of FoFA); and when coupled with an equally robust monitoring and supervision framework will ensure customers’ interests are protected,” the submission said.
