Ending grandfathering impacting emotional health of advisers

Amid calls by industry funds for a rapid cessation of all grandfathered commissions, the Association of Financial Advisers (AFA) is arguing that there is a significant lack of understanding of the issue with the result that the emotional health and well-being of honest, hard-working advisers is being affected.

In a submission filed with the Federal Treasury the AFA has made clear it is deeply concerned about the consequences of the push to rapidly end grandfathering, claiming that the politicians have simply made not enough effort to genuinely understand the situation.

“We are deeply concerned that there are unintended consequences playing out right now that impact the financial integrity of financial advice practices and in turn the emotional health and wellbeing of honest hard-working financial advisers,” the AFA submission said.

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It said this included “those younger advisers who have recently acquired businesses with debt, based on the valuation of recurring revenue, including grandfathered commissions”.

“We continue to argue for a more comprehensive review of the issue, a more pragmatic timeframe and an improved solution for clients who are currently in grandfathered commission products and are receiving services from their financial adviser and are happy with their current arrangements,” the AFA submission said.

“We remain concerned as to whether both the policy objective has been clearly defined and whether the winners from this exercise will be the intended winners. It is clear that there is virtually no appetite amongst the politicians or others who implement their decisions, to seek to genuinely understand this issue. We have particular concerns about the extent to which this process will deliver a fair outcome for all.”

The AFA submission also argues that the payment of grandfathered commissions is not a breach of the law as the law currently stands and that the Royal Commission erred in suggesting grandfathering fell below community standards.

As well, it said that a ban on grandfathered commissions “will disturb the financial advice relationship for many clients and will result in many no longer having access to financial advice”.

“The ban on volume bonuses will also push up the cost of running a financial advice business and therefore will ultimately increase the cost of accessing financial advice,” it said. “These implications have not even been considered.”


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Spot on Phil. There is no appetite for politicians to understand. Both major parties are engaged in "virtue-signalling" on this one in a race to the bottom under the guise of caring for consumers.

It should read, "those younger advisers who have been sucked into buying the rubbish offloaded by older adviser and licencees, based on a flawed valuation of recurring revenue, including grandfathered commissions".

Well said AFA. The ones calling for grandfathered commissions to be banned should actually talk to the clients of self employed advisers. I have a (now ex) client who worked out last Wednesday that with BT moving him to their new product that doesn't pay commissions, he would no longer be my client and asked how he can fix that. Over the years, all he has ever wanted is someone to answer product queries, process address changes and the like and has paid around $400 a year in commissions for that. To now bring him into the FDS world, I know I need to charge him more than that, but realistically as he is and will remain largely un-engaged, I cannot justify that, so will have to say to him you are no longer my client. Has he won?

Also correct AFA. The emotional health of self-employed advisers is being affected, as is their own financial health. The unintended consequences of all this will be practice closures and principals and staff becoming un-employed all across Australia. Australians will lose access to affordable advice. Have they won?

Not sure what is stopping you from asking this client to pay you $400 a year by other means with you continuing to provide the same service. Maybe I'm missing something ?

Simple answer. The reality is I cannot afford to provide him with service at that rate. The compliance regime of FDS puts a whole new level of cost onto my business. If I don't pass those costs onto the clients, I won't still be in business. Up until now I have always honored the "any help, any time" basis that my commission paying clients in legacy products were on. For several years I have not taken on lower balance, lower service level clients.

Well the client should be happy he/she was afforded such service previously for so little. If they arent willing to pay what it actually costs, they shouldn't be a client. Your business will be better off focusing on clients who actually value your service.

I cant go buy a ferrari for the cost of a kia. Get what you pay for in every other industry.

It's not the cost of the car Reality, it is the fact that one model allows the Ferrari to be driven on the road for Age Pension rego costs, and the other model insists that the same Ferrari have rego and insurance of a oversize heavy vehicle, driven over legal weight, over the speed limit, by an unlicensed driver with known drug issues. Trouble is, both cars are exactly the same, just the compliance. So, it is not a case of get what you pay for - unless the client values the enormous client files in your office so that ASIC can audit to justify their salaries is a valued service for your client. Lets face it, compliance is now a very large cost.

No, it is all about the cost. Just charge clients the exact same fee you were previously getting paid in commission if its that simple.

Thing is, its not that simple as the difference between commission and annual opt-in fees are that clients actually need to be serviced.

Reality, the difference is the definition of "service". According to ASIC (Violet Wong), service DOES NOT count as service for an ongoing fee - only "advice".

In addition, compliance under fee is a completely different animal and cost structure to commission. If you believe you can service a client for $400 pa (really, under $2Kpa), just say so.

Yep, I agree. Service does = some form of additional advice each year. There's always something else to advise on, including ongoing investment management.

And no, you cant service someone for less than $2,000 per annum. That's my exact point in that you cant get a ferrari for a Kia price. Those people shouldnt be clients in the first place and the reason there is so much ''fee for no service'' is because advisers are holding onto small balance clients they arent actually providing advice to on a regular basis because its lucrative.

Some advisers got into this industry because they want to help people. Not everyone can afford to pay several thousand dollars, but they still need help. They probably need it more in fact. The regulators obviously don't understand this or just don't think it's important. So the rich get richer, the rest go to ISA?

Good comment B Real. If you didn't join our once wonderful industry to help people, you shouldn't be part of it. Plenty of money to be made selling vacuum cleaners, used cars or the next fitness fad. We do need to be paid for the work that we do, but the Legislators need to be mindful that the people who need us, need to be able to afford the advice and the service that goes beyond advice. See a General Practitioner Medico, tell them you cannot afford the prescription medications, they find a way to provide them. That is best interest. We have not been provided with that safety net.

We need to complete a fact find, write a Statement of Advice, comply with Best Interest Duty requirements (which now basically prohibit scoped advice, so we need to look into each client's entire financial circumstances including advisor identified needs), provide and conduct an annual review, provide an annual fee disclosure statement, get the client to opt back in to receiving the service next year. Annual cost to our business? At least $4,000 for the initial advice process and $3,000 per annum ongoing. A bit more than $400...

"Maybe I'm missing something". Your in the running for the quote of the year. Others have explained the missing something very well.

So old fella, you were receiving $400 per year in commissions for the services you provided. Why not just charge an amount each time the client requires a particular service and not an ‘annual fee’. No FDS etc and from what you have stated ‘financial product advice’ is not included in the &500.

So Billy, explain the process of getting a fee from a clients Super Account? What compliance is required?

Provide personal advice on super - easy,

Silly Billy. All those years of education Billy and you run when cornered.

Hello silly Billy, you are aware that now "provide personal advice" excludes service? Or are you an outsider to the industry and not aware of how ASIC views the world of advice?

I agree with Billy. Just call it general advice, make sure you don't keep any paperwork, change the person for your time. Tell them it ongoing financial advice and probably tax deductible. ASIC will be happy, because there is no Commissions, no FDS, no optin, and since it was general advice no PI insurance cover.

RobinBris, your probably right. I suspect many of us will choose to be "unlicensed" very shortly. Much less compliance, cost, regulation and liability.

As far as I can see Government departments don't understand and just don't care. Their salaries are safe. So what if hundreds of advisers go broke, sack lots of staff, some commit suicide. All good with the Government. I'm sure both sides feel it's a better outcome if more superannuation money is managed directly by the platforms and Industry Super Funds. Any care about small business? It is really just lip service.

Thank someone for acknowledging this. I am at my witts end. I am just a f#*ed mess at the moment.

Can anyone tell me the amount of grandfathered commissions is being paid by fund managers and how many financial services practices/ advisers are in receipt of those commissions? So far it’s been blah blah blah with no quoted facts. A bit like Bill Shorten and his costings!

Really Bill?

I do hope the super funds are gearing up to handle the increase in customer queries. I will not be doing change of address forms or that sort of thing without getting paid. Or perhaps we could invoice the fund manager for our time to do routine tasks for them.

Over the next 2 years there will be a plethora of clients who are now paying $200 to $1,200 in advice fees via commissions looking for an ongoing financial advice relationship when their existing advisers who have parted ways, due to RoA and annual optin requirements. Advisers will be inundated with these types of clients and sadly most will be told that their ongoing advice fee is $4,000 and upfront SOA costs starting from $2,000. What will be the mental health of all these advisers after constantly saying NO to clients. This is the issue I am facing now dealing with existing clients who are all of a sudden referring their friends.

In short this is an industry tied to product via a licensing system and it's payback for very little self regulation. You're all happy to pay the FPA fees and they are in the pockets of AMP and the ilk and you are all happy for this relationship to continue. Standup... be a professional, LEAVE the FPA and form an association that puts the needs of Australians and Advisers first and have a clear conflict free voice with Legislators. Labor are coming best you prepare your house now.

My mental health has been $%@ for years. Competing with and putting up with the distribution sales force of groups like AMP and also white labelled bank advisers. Paying two to three times more in ongoing costs whilst an AMP adviser claims they're independent, hides their AMP brand and gets every business cost and marketing cost subsidized. All the while these people listen to and are getting business coaching from AMP and a Bank aligned coach who tells them to buy as it's all about FUM & AUM.....So the regulator has stepped in and said those relationships and this practice it's not acceptable. Now you tell me you're having a hard time... I feel sorry for you as an individual but also not so sorry. Maybe just sell your Black BMW that AMP paid for go back to your client "REGISTRAR" and get on with it.

Adam, what are you talking about with "hides their AMP brand and gets every business cost and marketing cost subsidized"? That would be news to a lot of people. Please give some specific examples please.


AMP is there but you have to look for it.

An example of something that Hillross pays for which they don't then bill the Adviser practice for?

Whether it's Godfrey Pembroke (NAB), Securitor (Westpac I think) etc etc the dealer group cost structures are supported by the parent through the product that the advisers in the respective dealer have a high percentage of clients through.

As a result the dealers are subsidised, dealer fees are kept below market for the advice firms. Things have improved in recent years but they aren't fixed although Securitor will be gone by years end.

Vertical integration was the single biggest miss by Hayne RC.

Has always been the biggest issue and why internal self regulation was way too too little too late.

I just got an email from a super fund. "Your client has filled out the rollover form to a different fund incorrectly. Can you please fix it?". I did not advice the client to do this. My query is this. With a FFS model, who pays for this service and time?

Ehhhh the client...?

Fee... For... Service.

The client did not request the work. Can you / Do you invoice people for work they did not request??

Did the client provide the super fund with your details? How else did they get them?

If you're the listed adviser and the client isnt paying any fees, perhaps you shouldnt be the listed adviser if they arent willing to pay fees. You cant be everything to everyone. Outline what things cost and it their decision as to whether or not they proceed.

As Wildcat has said, smaller clients are just becoming untenable and its not our fault. No other wider industry is constantly undercharging for their services to be charitable.

Thanks Guys,

The ones who think FFS for these low balance should work completely miss the point. The landscape has been changed irreparably.

It used to be easy to be nice and just help, even if you didn't make any money.

- It was the right thing to do
- made you feel good
- may come back if Karma works later on

Now the COMPLIANCE costs, which clients don't even understand let alone value are soooo high, this option has been removed. Whether it's for a grandfathered commission client or a pro bono nice guy act the compliance costs are what make the model truly unsustainable.

We've been FFS for more than 15 years, have almost no grandfathered clients but we have very few clients on less than $4k p.a.

This is out of the reach of many. These many are the very people we can have a massive and positive impact for. Sure making a multi millionaire richer is worth them paying me but I'm not changing their life for the better other than leaving the hassle, complexity and grunt work to us.

We are now turning more clients away who generally need/want help and I've told them we can't add value in excess of our fees. They don't know what to do, have nowhere to go. I'd be happy to help them but I can't afford to due to the massive increase in compliance costs.

They could call an industry fund if they value conflicted advice!!

I was told by a FASEA board member that one of UNINTENDED CONSEQUENCES of all these regulations was an increase cost of advice. Seriously!!! Is there no one at ASIC or Treasury with a brain??? If you add FDS's, opt in, AML, blah blah blah, who going to do it, the tooth fairy???

We have to put in an SoA what we are NOT advising and why we are NOT advising it.

ASIC can't figure that if you increase the burden of an already ridiculous level of red tape then the costs are going to go up!

Is this because they've never had to run a business, their salary is guaranteed by the tax payer and their definition of increased productivity is more paperwork.


You are correct. Those people we can really help cannot afford the cost of advice.
My thoughts on how to solve this are to adopt the "top 10" funds that ASIC have raised before. ASIC can decide who those funds are, but to be included in the list the fund must allow 1 off fees to be paid to any authorised adviser.
Then advisers log into the ASIC website and run through the ASIC template robo advice and discuss and explain each step with the client in the meeting. It's like an insurance application. It steps you through the process depending on the answer provided and you must include free form space to type in the discussion points raised and why a decision was raised.
It should include a risk profile section and also a retirement section that simply shows the projections on the clients current balance to age pension age and then how long their funds will last for. We can then show the client how reducing their current spending and increased saving can help their retirement income. Isn't this real financial advice?
This produces the advice and it selects a product from the Top 10 list.
This form is then submitted directly via email to the client, ASIC, the licensee and the adviser. ASIC and the licensee can have people sitting there auditing these at random as they are completed, and can address them immediately before implementation. ASIC can also then adjust their robo template to tighten up the compliance if it identifies many common failure points.
It would essentially allow any adviser to be an intra fund adviser with less compliance burden to advise small balance clients affordably. It would remove conflicted advice as the product providers would be competing to be on this list and ASIC would police the products and identify those best for purpose.
Product providers would do whatever it takes to get on that list which should increase competition, lower fees and increase returns to clients.
Funds that are below standard would probably merge with successful funds.
ASIC can set the fee that we are paid for this advice as agreed with industry consultation to be value for both parties.

This would actually mean we could sack our dealerships as well, just be licenced directly through ASIC. why not we pay the levy now, just pay a extra 9K and leave it at that. No more paying for marketing departments. Costs come down from 40K per annum to maybe 10K....the dealerships would go broke, us planner make more money, and ASIC has direct control.

Careful what you wish for. ASIC is a terrible regulator with a cultural anti planner mindset.

The ATO on the other hand is a great regulator in the SMSF space. Shame ASIC can't learn from them.

I don't think ASIC is silly or ignorant, or idiots. They simply have a different agenda. Since the majority of the changes increase costs, and since cost is the largest area ASIC focus on, you can draw your own conclusions.

The reason they are idiots as they said increasing regulations causing increasing costs was an unintended consequence.

How hard is that to figure out?

Remember a couple years ago it was making advice more accessible? Well they’ve achieved the exact opposite.

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