The end of grandfathering will be devastating for some advisers, particularly those who in good faith borrowed money to kick start or grow their client base, according to the Association of Financial Advisers (AFA).
In a communication to members the AFA chief executive, Phil Kewin has expressed the association’s disappointment at what he described as a lack of due process around grandfathering and the simplified narrative that it had few implications beyond stopping payments to advisers who weren’t servicing their clients.
What is more, Kewin has urged that banks which have loaned money to advisers using grandfathered commissions as security to be “flexible and understanding” with advisers who are impacted.
“If their [the bank’s] due diligence didn’t identify a future issue with grandfathered remuneration, then the small business adviser would likewise be challenged in anticipating this outcome,” Kewin said. “Indeed, the ABA [Australian Bankers Association] was one of the parties calling for a ban on grandfathering in their Royal Commission submission.”
Kewin has also warned that product providers who cease paying grandfathered commissions ahead of the Government’s end-date should be made to prove they have passed on the full benefit to the client.
“This does not mean ‘where practicable’, or ‘generally’, it means all commissions, volume and shelf space payments. Ceasing these payments must be to the benefit of the client. Otherwise, why are we doing this?” he said.
“To say that we are disappointed in the process, or more lack of due process, on this issue is an understatement. We recognise Grandfathering does not impact all advisers and indeed many see it as a blight on our industry that needs to be removed. We also recognise that banning grandfathered conflicted remuneration will remove another of the layers of opaqueness that fuels negative perceptions of financial advice,” the AFA communication said.
However, the outcome will be devastating for some advisers, particularly those, who in good faith borrowed money to kick start or grow their client base, and now will not have time to review their clients whilst trying to maintain an income to repay a loan on an asset that now has no value.”