The Government and regulators need to recognise the purpose of trail commissions attaching to legacy products and that they were the strategy of product manufacturers and licensees, not advisers, according to financial services business broker, Paul Tynan.
Tynan, the chief executive of Connect Financial Services Brokers, said it needed to be remembered that the trail commissions attaching to the legacy products were incorporated into their design to remunerate the adviser for their advice and were not part of an ongoing advice arrangement.
His comments come against the background of a submission from the Financial Planning Association acknowledging the possibility of a three-year phase-out of grandfathered trails and suggestions by the Australian Securities and Investments Commission (ASIC) that it had never backed long-term grandfathering as part of the Future of Financial Advice (FoFA) changes.
Rather than trails attaching to legacy product, Tynan claimed that what had caused many of the bad advice practices highlighted by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry had been industry business models and product providers.
He said these parties had caused a misalignment between planners’ advice and clients’ best interest.
“This has been allowed by successive governments, ASIC and institutions because of the honey pot of superannuation,” Tynan said. “FoFA brought the planners and clients’ interest into alignment; however, ASIC and government continue to only listen to the failed captains of industry who put flawed business structures in place to serve their own self-interest. For example: Vertical Integration; Buyer of Last Resort (BoLR) and Dealership Licensing.”
“These three practices have been responsible for driving a wedge between clients and advisers,” he said. “Don’t blame advisers for trail commissions when they were a part of the product design and the only product available to satisfy client needs. Trail brokerage in these products did not constitute an ongoing service arrangement.”
“Banning commission retrospectively fails to acknowledge that individual advisers have borrowed to acquire businesses and client registers to underpin commercial expansion on the assumption that trail commissions would be continued to be paid for the life of the individual policies,” Tynan said.
“If the product manufacturers want to ban grandfathering, are they going to:
1. Buy back the trail commission from the adviser at a commercial market value
2. Pass on the trail commission value back to the clients
3. Help advisers facilitate the transfer to new products which would require a case by case evaluation and to undertake this task would require contacting and discussing the matter with each and every single client, issuing a SoA and so on.