Commission trail won't go cold

The Future of Financial Advice reform proposals are not retrospective, but there is confusion about the compulsory annual renewal notice that would enable clients to ‘opt in’ to continue receiving advice.

A spokesperson for the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, explained that the reforms did not apply to existing contracts.

“In relation to trail commissions, this means that any existing contract where the adviser has a right to receive a trail commission will continue after 1 July 2012. This means that trail commissions will continue to be paid by consumers in these circumstances,” the spokesperson said.

Referring to the annual ‘opt-in’ arrangements, they said the terms of the existing contract, which includes the renewal process, would continue to apply.

“The implementation consultation will address any complicated issues and circumstances that may arise, and whether or not those circumstances form a new contract,” the spokesperson said, adding however that ‘new contracts’ may encompass new pieces of advice as well as new clients.

Radar Results’ John Birt said regardless of when the business was written, trailing commissions would be switched off if the client felt they were not being serviced.

“This is where it will have a large effect, especially on orphan policies and C and D clients,” he said.

Stephen Prendeville of Kenyon Prendeville understood that the reforms would only affect new clients after July 2012.

“At this stage it’s really business as usual. We can’t have knee-jerk reactions to proposed legislation,” he said. Chris Wrightson of Centurion Partners said his company had received calls from concerned advisers, but most were taking a ‘wait-and-see’ approach.

He said current transactions indicate that buyers are confident they are buying a revenue stream that is going to last after July 2012.