Call to end grandfathered commissions inside 12 months

Grandfathered commissions should be outlawed under a 12-month phase-out, according to major superannuation industry body, the Association of Superannuation Funds of Australia (ASFA).

ASFA has used a submission to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry to state that it “supports the introduction of a termination or ‘sunset’ date for grandfathered commissions with the length of the transition phase of one year”.

Answering specific questions posted by the Royal Commission, ASFA said it believed appropriate transitional arrangements would permit an orderly transfer from trailing commissions to upfront fee for service and ongoing opt-in arrangements in relation to financial advice.

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“Importantly, they will also facilitate superannuation businesses transferring members to more modern products, in their best interests,” the submission said.

However, in doing so, ASFA said there were a number of transitional issues to consider, and that the focus should be on getting members out of legacy products and into rationalised, streamlined products with scale and commercial benefits.

On the question of financial advice, the ASFA submission said the organisation supported “maintaining the status quo for general, intra-fund or scaled advice which gives trustees the option of including the cost of these types of advice in the general administration fee or charging an additional fee at their discretion”.

“While we acknowledge that not all members will make use of this service we consider that making it strictly fee-for-service will increase the costs charged to individual users,” it said. “This would discourage members from making use of it which could leave them worse off individually and as a group if, for example, the fund determined not to provide such services due to very low take-up rates.”

ASFA said it supported members being able to pay for personal advice fees from their superannuation fund balance subject to the sole purpose test and Future of Financial Advice (FoFA) constraints.

It said that with regard to ongoing financial advice fees, there was already a raft of opt-in, fee disclosure statement and other rules around ongoing fees and there were also some exemptions if the financial planner complied with a relevant ongoing fees code.

“For example, the Financial Planning Association (FPA) has an ongoing fees code with ASIC approval that exempts planners from some requirements,” it said. “ASFA considers that given the evolving state of financial planning regulation and standards there may in the future be a need to look at the potential benefits of stricter rules for opt-in requirements, benchmarks and reporting, and/or a link to the new Financial Adviser Standards and Ethics Authority (FASEA) that is being developed now.”




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The use of the term " outlawed " is deliberate to frame the payment of legally received remuneration for the provision of advice and services to superannuation clients as being unethical.
With all due respect Mike, would you clarify if the use of this term were your words or the words of ASFA, because you didn't quote ASFA as stating these terms ?
So ASFA want to obliterate commissions in 1 year, leaving many tens of thousands of clients paying more in fees, facilitating transitional product consolidation without detrimental impact on client's existing strategies including the issues of existing insurance cover/automatic acceptance terms, Centrelink assessment for pensions, and the fact that many ,many of these clients are receiving cost effective personal advice paid for from within their product.
ASFA also want general, intra-fund and scaled advice exempted from the same regulations applied to advisers.
This is simply ridiculous as advice is advice. When a super fund member contacts their fund to ask about contribution types and levels, nomination of beneficiary issues, insurance types, cost and definitions etc, is it ok for the call centre staff member to discuss any of these matters at all without first knowing the objectives and needs of the member and acting in the best interest of that member ??????
But, they want to slam ethical and professional advisers who may only receive a portion of their remuneration from these payments and provide cost effective personal and general advice services specific to their clients needs.
ASFA are simply only interested in the protection of their own space and profile.

A lot of clients would benefit from a reduction in fees and commissions if this happened though... A reduction to zero. They would continue to receive the same level of service in most cases, also zero. If they want and need advice, they can choose to pay for it through a fee arrangement. Its very simple.

SD, lets assume I am "very simple" and in simple terms, please explain then why “maintaining the status quo for general, intra-fund or scaled advice which gives trustees the option of including the cost of these types of advice in the general administration fee or charging an additional fee at their discretion”. How this is not a commission? And following your logic "A lot of clients would benefit from a reduction in fees and commissions if this happened though... A reduction to zero. They would continue to receive the same level of service in most cases, also zero. If they want and need advice, they can choose to pay for it through a fee arrangement. Its very simple."

I agree, it shouldn't exist for anyone. Either a fee is agreed to on an ONGOING basis or not at all whether its adviser, intrafund or whatever. Those fighting to retaining grandfathered commissions are just those that know their client base isnt engaged or properly serviced, resulting in many of them not agreeing to pay a fee if it comes to that.

You make a generalist and unfounded assumption that clients who pay the adviser via a commission model are not engaged or do not receive advice or service.
The Fee for Service model is potentially conflicted due the fact that many advisers will provide meaningless advice, in order to justify the fee charged.
The client believes they are receiving valuable, strategic advice, but in reality, it is is simply a way to justify the adviser's existence.
The consumer should always be provided with clearly identified, disclosed and informed choice as to how they pay for advice.
choice.
Removing consumer choice is blindly accepting that one method is suitable and acceptable by all consumers and this is manifestly wrong and ideologically biased.

The view is formed by knowing many, many advisers who have just bought up books and never spoken to the clients within yet collected the fees/commissions. Its also formed from seeing various clients come to my firm having absolutely no idea they have an existing adviser and having not heard from him/her.

Not every client gets benefit out of paying a fee, I agree, however if every client needed to sign an opt-in form every couple of years the ones that dont see/receive value will stop paying the fee.

The absolishment of grandfathered fees/commission really isnt an issue to an adviser that services every one of their clients. It will be no harder for clients to pay for the service, it will be harder for advisers to charge 'fee/commission for no service'and thats exactly how it should be.

The 'good old days' are over mate. Time for everyone to be a professional.

“maintaining the status quo for general, intra-fund or scaled advice which gives trustees the option of including the cost of these types of advice in the general administration fee or charging an additional fee at their discretion"
While we acknowledge that not all members will make use of this service we consider that making it strictly fee-for-service will increase the costs charged to individual users,” it said. “This would discourage members from making use of it which could leave them worse off individually and as a group if, for example, the fund determined not to provide such services due to very low take-up rates.”
How is this not trailing commission?

If they charge a fee for general ad advice in the admin fees, and the member does not take up the offer.... is this a fee for no service???

What a convoluted and contradictory explanation from ASFA.
It is obvious their very first priority is to make a statement regarding abolition of commissions, but then emphasize the need for carve outs, affordability issues and take up from members, product transitional issues, and potential of funds to remove access to services due to low volume of requests by members.
Brilliant thinking ASFA....just brilliant.

Once again let's blame the adviser. Let's overlook the millions of dollars Advisers have placed into the Super funds of Australia and let's just kick em in the guts. Isn't paying for Tennis match seats ( Hesta) a form of Grandfathered commission. Isn't the $700 million Hostplus gave a Union fund a Commission? The lack of knowledge of issues here sends a signal that something else is a foot. A classic look over their at commissions...let's blame advisers and their is nothing to see hear at Super land. Commissions are a dead man walking but it's not so simple as turning them off. Is this a case of large Super fund trustee have not been acting in the best interest of their members but let's use some deflection tactics to change where the finger is pointed.

Maybe advisers & planners should walk away from super and recommend Pink Diamond Portfolio's, an investors best friend or whatever. See how ASFA get on.

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