The Association of Financial Advisers (AFA) says it has been left completely confused by Industry Super Australia (ISA) suggestions that financial advisers will in some way benefit from a situation where clients are rebated grandfathered commissions by financial product providers.
Reacting to the ISA’s claims associated with a Treasury submission, AFA chief executive, Phil Kewin said his organisation was “completely confused by the ISA media release, which seems to be suggesting, without explaining how, that these regulations will provide some unreasonable advantage to financial advisers”.
“In our view this assertion is totally false,” he said.
The AFA was so disturbed by the ISA’s claims that it set out a point by point rebuttal of the industry fund organisations statement:
ISA: Consumers will once again be left vulnerable to raids on their super accounts by financial advisers if a government proposal to allow grandfathered conflicted remuneration to continue goes ahead.
AFA: We can see absolutely no mechanism for how financial advisers could raid super accounts and do not agree with the statement that this has been the case in the past.
ISA: Industry Super Australia has strongly opposed the move in its submission to the Exposure Draft Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Regulations 2019.
Despite a clear recommendation by the Royal Commission that grandfathering arrangements should cease, the Government’s draft regulations effectively give an exemption for financial institutions to continue provisions for conflicted remuneration by allowing a rebate or monetary benefit scheme to be established.
AFA: We cannot see how the draft legislation and regulations that ban grandfathered commissions in any way allow the continued payment of conflicted remuneration beyond the date of banning.
ISA: Industry Super Australia Chief Executive Bernie Dean slammed the proposal and called on the provisions for conflicted remuneration to be repealed as soon as possible – in line with Commissioner Hayne’s recommendation.
AFA: The Royal Commission called for a ban as soon as practicable and not as soon as possible. The reference to practicable is very much a different criteria in that it takes into account the practicality of what is required to implement such a substantial reform.
ISA: “Let’s not forget that grandfathered commissions remove money from consumers’ accounts without their express consent. This is akin to stealing money,” Mr Dean said.
AFA: Grandfathered commissions are paid by the product provider from the product fees. Since 2003 financial advisers have been required to provide a Statement of Advice, including fully disclosing all remuneration. Express consent was required and the suggestion that this is stealing is entirely misleading.
ISA: “This is money that would otherwise have been maintained, in a consumer’s account, and instead was siphoned off to pay financial advisers for nothing.
AFA: The commission is paid for by the product fees and would have been fully disclosed in the SoA and the PDS. To suggest that this is paying for nothing as a general statement is incorrect as many clients advisers are delivering ongoing service to their grandfathered commission clients.
ISA: “To claim administrative inconvenience as an excuse to try and water down what should be a blanket ban on grandfathered commissions, is astounding given the disgraceful conduct that was exposed during the Royal Commission.”
AFA: We are completely unaware of what the reference to watering down is referring to. The only administrative inconvenience is that in cases where the product provider does not cease paying the commission, the adviser will be forced to refund it. This provides no benefit to the adviser. Additionally, there were no cases highlighted in Royal Commission that demonstrated disgraceful conduct by financial advisers with respect to grandfathered commissions.
ISA: “While some parts of the super sector will fight tooth and nail to keep grandfathered conflicted remuneration provisions – at the expense of consumers – our position is clear.
“We do not support a watering down of the blanket prohibition on grandfathered commissions. Any attempt to provide exemptions for conflicted remuneration will only erode consumer protections and leave consumers worse off.
AFA: We are completely unaware of any watering down that has been included in this draft legislation and regulations. In our opinion this reform is being implemented too quickly and is failing to consider the full consequences. Our concern is that there will be many clients who end out losing access to financial advice as a result and that this solution will be incredibly complex and costly to administer, resulting in inefficiency and ultimately client disadvantage.