The Government needs to fix a number of anomalies in its legislation which would see the removal of grandfathered remuneration for financial planners, not least the risk of forcibly moving clients in to worse products, according to the Association of Financial Advisers (AFA).
The AFA has responded to the legislative outline released last week, not only noting its deep concern about the lack of industry consultation, the limited time-frame and the lack of guidance being provided to financial advisers but also pointing out anomalies in the bill.
AFA chief executive, Phil Kewin, said his organisation particularly concerned that the Bill to end the grandfathering of commissions on investment and superannuation products did not adequately provide a mechanism for exemptions where the client is better off in their current arrangement.
“We are also concerned that there has been no assessment of the number of consumers impacted by this measure,” he said.
Kewin also called for a proper Regulation Impact Statement to delivered with respect to the legislation, arguing that the assertion in the Explanatory Memorandum that the Royal Commission was an equivalent process to a Regulation Impact Statement was not valid.
“The removal of grandfathered commissions is actually highly complex and can’t be dealt with simplistically, and certainly not in such a short timeframe. Retrospective legislation is not common for Governments, and often creates significant challenges,” he said.
“The complexity arises because of the huge variety of products, administration systems and client situations,” Kewin said. “There are numerous different scenarios with a multitude of different consequences,” he said. “In some cases this might be straightforward for the financial adviser and their client, however in many thousands of cases there is a genuine risk that clients who are happy in their current product and receiving valuable ongoing financial advice and related services will either lose access to that support or be required to pay more to retain it.”
Further, he said consideration needed to be given where a client is prevented from moving products as a result of Capital Gains Tax, grandfathered Centrelink Asset Test treatment or insurance issues.
“Financial advisers will need to spend a significant amount of time dealing with a variety of challenging situations. They will be required to contact their clients, review their circumstances and make a recommendation, which in many cases would involve an additional fee for that service.
“It will take some time for the product providers to prepare for these changes, meaning that the proposed window will not be sufficient for either the advisers or the hundreds of thousands of impacted clients. Financial advisers will also need guidance on how to confront this challenge but none has yet been provided.”
The AFA is arguing for greater industry-wide consultation on the unintended consequences of a ban on grandfathered commissions, a three-year transition period and provision for exemptions where the existing product is best suited to the client or the client may be disadvantaged by changing their current investment or superannuation product.
“Removing grandfathering in a manner that ensures that it works in the best interests of clients will take a lot of work by many stakeholders and that takes time,” he said.