The Association of Financial Advisers (AFA) has called for a three-year transition to the removal of grandfathering with consumers given the right to opt-in to existing arrangements.
In a submission filed with the Treasury, the AFA has also callled for key exemptions for some products such as lifetime annuities and whole of life products.
It has also warned that banks are already telling financial advice lending clients that they are placing no value on grandfathered commission clients.
However, the key to the AFA submission is that clients should have the option to opt-in, in order to continue a grandfathered commission arrangement where they can continue to access financial advice.
It has also urged that the Government provide capital gains tax (CGT) rollover relief and Centrelink rollover relief as result of any removal of grandfathering.
The AFA submission said that with respect to the future of grandfathering, there had been “no genuine debate on grandfathered commissions and no apparent appetite to understand the implications of this proposal”.
“This has been a highly political matter that has meant that genuine consideration of the implications has not occurred,” it said.
“We have taken a number of steps to try and ensure that there is a comprehensive analysis of the issue, however in many ways we have been discouraged from speaking up.”
The submission said the Royal Commission recommendation around granfathering and the response of the political parties had already “had a very material impact upon the financial advice sector”.
“We are aware of some banks who are already telling their financial advice lending clients that they are placing no value on grandfathered commission clients,” it said. “The outcome in this change of business valuation methodology is that it may put a material number of financial advice businesses in breach of their loan to value ratio obligations and therefore put their loan in default. This is happening even before the law has been passed.”