The Association of Financial Advisers (AFA) has provided members with an “advocacy pack” with which to lobby politicians which argues for a slow-down in the rate of change being imposed on the industry.
The pack provides advisers with key messages to deliver to their local members of parliament with the theme being that advice is being made unaffordable, advisers need time to adapt, that most advisers work in small businesses and that life insurance is a critical safety net for all Australians.
The advocacy pack traverses the Financial Adviser Standards and Ethics Authority (FASEA) regime, the removal of grandfathered commissions and the future review of the Life Insurance Framework (LIF), making clear the potential damage which risks being inflicted on the industry.
Where grandfathered commissions are concerned, the AFA has pointed out that while the Government proposed to remove then by 1 January, 2021, the Treasurer, Josh Frydenberg, “has since issued a Directive to ASIC to oversee the removal sooner”.
“This was done without any warning or consultation and the actions of Australian Securities and Investments Commission (ASIC) are already causing significant stress for some of our members’, impacting cashflows and also business values,” the AFA document said. “This will send some businesses, that have larger loans, secured by grandfathered commission clients, bankrupt as their business valuations decline drastically. The Government has now introduced legislation and product providers are starting to move early.”
It said the AFA supported a practical transition to remove the remaining trail commissions and was asking for consultation to extend the removal timeframe to three years.
On the question of the future of life insurance commissions, the AFA is urging its members to emphasise Australia’s under-insurance problem and the international experience suggesting that a ban on commissions does not work and delivers a worse outcome for consumers.
The advocacy pack finishes on the issue of the pressures being imposed on small business and the huge cost pressure on financial advice businesses from a range of sources.
It makes the following points:
- Financial advice businesses have made decisions over the last five years based upon the law that was in place at the time, however they now face the prospect of fundamental changes that will seriously challenge their viability.
- Banks have lent money to financial advice practices on the basis of the laws that applied at that time and the conventional models for the valuation of advice businesses. The Royal Commission has fundamentally changed those valuation models and now there are many financial advice practices at great risk.
- Ultimately, we are seeking a sensible process for the consideration of these proposed changes and to have the opportunity to engage in the debate as to whether each of these changes will result in a better outcome for both current and future clients and whether better solutions are available.