The recommendations of the Royal Commission including the ending of grandfathering should not be allowed to become a political point-scoring exercise in an election year because it risks turning a roadmap to higher standards and professionalism into a blueprint for destruction, according to Financial Planning Association (FPA) chief executive, Dante De Gori.
And while De Gori acknowledges that the FPA has an official policy of removing grandfathered commissions over a three-year transition period, that does not mean it supports the fees paid by clients simply being utilised elsewhere by product providers.
In a column to be published in the next print edition of Money Management, De Gori argues that with the benefit of hindsight it may have been better to extend the Royal Commission’s work by six months rather than push it out into an election battleground.
Looking at grandfathering, the FPA chief executive said there were two potential scenarios to consider – the first being what happens when the grandfathered commissions end.
“The primary outcome is that the financial planner will no longer receive that payment – but that doesn’t mean the client will stop paying it. That fee may still be charged and will go somewhere, just not to the financial planner,” he writes.
“Secondly, there’s the risk that clients (as a result of legislation forcing product providers to close products) will simply be moved from one product that is paying a grandfathered commission to another product that does not, but which may not be in their best interest. The client impact of forcing a change of product could lead to tax and capital gains tax liabilities, or loss of social security benefits in some cases.”
“We must remember ending grandfathered commissions will also affect investors who do not have, or no longer have, a financial planner — unless the cost of product fees are reduced to reflect the end of commissions,” De Gori writes.
He said there were just two examples of the tangible, real implications of political point scoring over a complex issue. If the recommendations were made without an election looming, perhaps the right consultation, collaboration and consideration would be invested before making loose legislative declarations.