End grandfathered commissions ASAP, says ASIC

Grandfathered commissions should cease as soon as reasonably practicable and to the maximum possible extent, according to the Australian Securities and Investments Commission (ASIC).

The regulator has used a submission to the Productivity Commission (PC) inquiry into superannuation competitiveness and efficiency to argue strongly for the removal of all commissions, even while acknowledging the transitional grandfathering arrangements under the Future of Financial Advice (FoFA) legislation.

“Trailing commissions were banned under the FoFA reforms going forward, but those already in place continue to be paid under transitional (grandfathered) arrangements,” the submission said.

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“ASIC’s position is that grandfathered commissions should cease as soon as reasonably practicable and to the maximum possible extent,” it said.

“Short of a more rapid phase out of trailing commissions, we support the PC’s (Draft Recommendation 13) that there be more transparency about the extent trailing commissions are still paid by members of a fund and that any trailing commissions paid are disclosed periodically to the member,” the submission said.

It said that ASIC would explore ways to make the information public in a comparable manner.

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ASIC should be banning all commissions rather than focusing on one industry. Real estate agents, Mortgage brokers, Insurance brokers, Online health insurance comparison services/brokers, Gas and Electricity comparison services etc. To make it fair for everyone if you would any of these services you should pay up front. If you can't afford to pay then back luck, no option for you!

You left of Choice off the list which is supposed be the word we can't use....independent. They get paid by product providers!!

Pointing at others saying they are bad too so why can't we be is not the right answer. I'm yet to see a cogent argument about how grandfathered commissions hurt clients. Judging historical behaviour on current norms is not fair or reasonable when it wasn't unconscionable in the first place.

The Choice publication is not paid by product providers. Its subscribers fund the Choice organisation. Check your facts before making untruthful assertions. Just means the rest of your argument cannot be trusted.

Why not simply insist advisers fully disclose all trailing commissions to every client in an annual fee disclosure statement that details the services provided for those commissions? many would do that already.

We have next to none of these but I feel this is grossly unfair. If you have borrowed money to purchase a business several years ago is ASIC going to refund you your loss? Or even if you didn't, the client signed a contract to complete a IT WAS AGREED TO voluntarily by both parties. The client can terminate this transaction at any time if they wished.

The clients certainly won't be better off. We never saw MER's fall when new commissions were banned.

Is this ASIC just trying to help out the poor beleaguered insto's??

This nanny state stuff that has infested our political spectrum has to die. Unfortunately it's only getting worse.

Seems pretty straightforward to me. Issue an FDS and Opt in for commissions in the same way as we already do for fee for service, and level the playing field. Those who are getting value will continue to pay, those that don't wont and should have the option for a commission rebate to their policy, pretty fair I would think? Imagine the transparency that would create......

Sandy, that makes way too much sense so would never be implemented.

Not to mention the uproar that some advisers will be actually expected to speak to their clients to keep getting paid.

I wonder what the impact will be on unemployment in towns all over Australia. I for one can not employ my staff.

I chose to have a look at this issue for my Masters (thanks Griffith!)- the research says that banning commissions will potentially hurt some customers and that the better approach is to disclose commissions (even voluntarily). It actually improves the client relationship and empowers the client by diminishing the the asymmetry of knowledge. You'll find it on Youtube if you're keen - or just want to know what your future study is going to be like!

Again, another regulator sticking its beak into policy. How about ASIC doing what their paid to do, that is, regulate the current law. Bring on the next Federal Election and hope for an end of 11 years of weak Government and bring the mandarins back into line and put back on the leash.

The answers are so incredibly simple.

Occam's Razor suggests that when faced with a range of competing assumptions, the simplest is often the most appropriate.

Every account or policy provides a regular statement. Each account provider's system includes calculations of any "trail" commissions payable.

Have ASIC write a note that is to be included with EVERY statement provided. The note confirms that a commission is being paid, and to whom it is being paid. The note confirms the client's option of turning off the commission, and the outcomes relevant to that specific account or policy.

The answer is to better inform clients of the power they already hold - the power to turn off commissions on a whim and the flick of a pen.

Grandiose - and grossly misinformed - calls for wholesale change are unlikley to be in all clients' best interest.

And for those clients where the adviser doesn't have the correct address/contact details so they never recieve their statements.

Make them opt-in to keep paying commissions. That will let people decide whether they are receiving value or not.

This is just asic changing the goal posts. It was negotiated that clients in commission super pre 2013 were to be left alone. Now all of a sudden its totally wrong and needs to be stopped. Stand up guys geez we are our own worst enemy. These clients can move products, they can get the advisers name taken off the account. They do know this, they get statements with advisers names on them. If they werent happy they would move. Stop assuming these commission paying super clients are totally unaware of the situation, Look at the asic site under financial advice they even teach clients about fee for no service and give them the details of the ombudsman to apply for refunds of adviser fees. Clients arent stupid, they are very well educated these days and know whats going on! Hey lets not ask the clients what they think, lets just assume they dont know anything and work from there? Why?

It was negotiated on the assumption that grandfathering commissions would mean that advisers gradually transition away from them, they havent. They haven't done this as its easy to collect the money without servicing the client.

Id certainly bet that a good proportion of clients (not all) wouldn't sign for their adviser to keep receiving commission ongoing if they knew there was the option to turn it off. Mostly because the advisers with 1,000's of clients simply cant service them and havent spoken to them.

If you think all clients know about the payments and are being serviced (so happy to keep paying) they wouldnt have an issue signing an opt in form at their next review that they apparently get.

This industry is its own worst enemy, youre right, but unfortunately its on the basis that we refuse to admit most clients are still in commission paying products because its easy money.

Commissions were not originally intended as a fee for a specific set of services, nor were they specifically meant to be advice. They were payments made by product providers, as part of their distribution costs. They were also used to convert a fixed unit cost (rent and wages etc) into a percentage proportional to income - advisers wearing a proportion of those costs.

These concepts were considered advantages and a form of insulation against economic booms and busts, and because the distribution through advisers was seen to be cheaper than through direct marketing. 26+ years of economic growth have reduced thoughts of recessionary impacts, so such concepts are less in vogue now - yet they remain valid.

For those who may not have background in product pricing, distribution and service/advice history, I have written a post on my blog - Michael's Musings. It's not a plug - it's an attempt to bring a bit of information to an area that is full of opinions but bereft of information.

FOFA quarantined older policies from wholesale change. MySuper shifted all employer SGC accounts to ensure they did not pay commissions.

Regularly reminding legacy policy/account holders that they can remove their adviser - and the account-specific implications if they do - would be a very simple, low-cost and effective way of dealing with grandfathered commission accounts.

In the past Every Policy or Product with trail commissions always made reference to the ADVISER because the MANUFACTRURER wished the ADVISER to be the first person contacted by the client when the client had issues. It saved the MANUFACTURER STAFF, TIME AND MONEY! The TRAIL COMMISSION WAS PAID BY THE MANUFACTURER, NOT THE CLIENT.
Good Advisers will always contact a client at least once a year to check that they are served adequately by the Policy or Product and whether changes are required or additional Policies or Products are required. In my experience as the client of the ADVISER with the largest number of Policies/Products in our industry, I was always contacted personally once or twice a year. Every client of that ADVISER knew that the ADVISER was being paid commission. The ADVISER provided complete service as needed plus value added from time to time, having established a large network of allied people such as Funeral Directors, Bankers, Solicitors, Motor Vehicle Suppliers, Accountants, and other suppliers too numerous to mention. Sometimes there was simply a quick phone call of only a minute or so. At other times the conversation developed into a real SERVICE call. And, yes, this ADVISER made lots of money but worked very hard for it! And he received thousands of referrals!

When you venture an opinion it's good to back it with facts.

"most clients are still in commission paying products".

The true number is 30% (hardly most), in our dealer group it is 6% and this includes grandfathered risk insurances.

You take what I have said out of context (by omitting the rest of the quote) because you know I am right. I wasn't saying most clients are in commission paying products, I was saying most clients in commission products stay in them because advisers don't recommend otherwise as the clients would become harder to retain (though needing to service them to justify them continuing to opt-in to a fee arrangement).

There are still a lot of advisers out there will 1,000+ 'clients' allocated to them. I know one local office with 2 advisers and 10,000+ clients due to them predominately being commission/grandfathered. If you think two advisers are servicing 10,000 clients each year you are kidding yourself...

Im just sick of sharing the same job title as crooks like that.

On both points I agree. We are 120 core clients and 50 minor clients and 2 advisers so the opposite end of this spectrum. It must be remembered though that I know, as I'm sure you do, that there are accountants who start SMSF's for their own personal gains in fees and bury their mistakes or oversights easily in a tax return, lawyers who rip their client blind and doctors who de-fraud medicare. No profession is immune from the bad apples and the quality of our apples is improving, slowly I admit but it is definitely improving.

Trying to make these kind of significant changes too quickly often results in unintended consequences that are worse than the problem we are trying to fix, this is what is happening now with this debate on commissions, FASEA and few other areas.

Agree with everything you have said there. Wildcat, from those client numbers, you are operating how I think the industry should. Less clients, more service per client. Average fees per client will be higher but that's only because you are justifying your service and benefiting the client. We work on similar numbers.

My comments are sometimes seen as overly 'negative' however I am just sick of some ruining the reputation of all of us. I think a lot of this is an easy fix. Retain commissions for all I care (especially in centrelink cases) but make clients opt-in to them. If the client actually has an ongoing adviser relationship, they will opt-in.

I dont care for those who paid too much for their book of clients thinking nobody could ever take away their commissions on inv/super... Accountants, lawyers and property spruikers need to be held to account also... Property needs to be a financial product plain and simple.

You nailed it.

This is the same ignorant rubbish from a Regulator who does not have any idea what Financial Advising is about.
Likewise the Royal Commission which does not realise that dead people, that is the ESTATE of DEAD PEOPLE ADMINISTERED BY THE TRUSTEE do need ongoing advice (which must be paid for) until the ESTATE is wound up. For example, during this administration period there can be changes in Economies, Investment Sectors, Funds Managers (getting sick, moving on, losing the plot), Currencies, Geo-Political Issues, etc, any one of which may require changes in the portfolio of the DEAD PERSON, THAT IS, THE ESTATE!!!!
ESTATES are not wound up over night but can take years to complete and a Solicitor Administering the Estate would not be qualified to provide ADVICE or have the skills to administer a Portfolio!! The needs of the TRUSTEE MUST BE MET BY QUALIFIED PROFESSIONAL ADVISERS who must be paid

ASIC(k) joke trying to hasten the death of the financial planning profession by any means possible, including misusing perceived public sentiment during the RC to grandstand absolute rot over items that had previously been agreed to in legislation. We don't have any real quantity of GF comm, but there is nil benefit unless product providers are forced to refund clients and clients are provided with the active choice to continue paying their adviser by those means. I note their 'statement' does not indicate these, so is simply opportunistic politically engineered shite.

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