Ending grandfathering will alter the flow of $ billions

The ending of grandfathered commission arrangements and fee for no service could see billions of dollars moving back into superannuation fund member accounts, according to a new analysis released by specialist research house, Dexx&r.

In an analysis made available to Money Management, Dexx&r chief executive, Mark Kachor suggested the impact of bringing an end to grandfathering could be far more significant than had been appreciated by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

He said that based on data pertaining to the last six months, the ending of grandfathering could result in a one-time payment of $1.75 billion to member accounts.

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What is more, Kachor said the Dexx&r analysis was based on the reality of the six largest players in the field – AMP Limited, BT/Westpac, ANZ/OnePath, Commonwealth Bank/CFS, IOOF and MLC/NAB.

He said the analysis was undertaken by first identifying the size of funds under management (FUM) at June 2018 that related to FUM in-force as at June 2013, with each product with more than $800 million in FUM as at June 30 2013 held by each of the six largest administrators in these market segments (AMP, BT/Westpac, ANZ/OnePath, CBA/CFS, IOOF and MLC/NAB) being used in the analysis.

“Our analysis shows that there was a total of $189 billion in FUM held in pre-Future of Financial Advice (FOFA) Personal and Employer Super funds as at June 2018. This represents 57.5 per cent of total Personal and Employer Super FUM in force at June 2018,” he said.

Kachor said that Dexx&r had developed both a low and high estimate of the overall impact of the removal of grandfathered commissions with the low estimate based on an assumption of 15 per cent of June 30, 2018, FUM relating to pre-FOFA Personal Super and 40 per cent of employer Super and equated to $1.75 billion.

He said the higher estimate was based on 50 per cent of Personal Super and 40 per cent employer super and equated to a one-time pay-out to members of $3.7 billion.

Further, he said that under such a scenario, an additional $1.1 billion would flow to member accounts each year following the reduction in ongoing fee for no services charges and the removal of grandfathered commissions.

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A simplistic statement. Whilst some clients that are no longer engaged with an adviser will benefit, many clients under commission arrangements have/will be renegotiating a fee for service arrangement with their adviser, often at a much higher rate than current commission amounts. Clients in most cases still prefer to pay for advice from super due to restrictions with personal cashflow

I look forward to the next Royal commission in 10 years, 'Why financial advice is so expensive that only the top 20% of Australians can afford to manage their financial wellbeing". Australians are receiving poor general advice from banks and Industry funds, not consider their personal situation, resulting in millions of retirees apply for government benefits and the government not being able to fund age pensions and age care for Australians.

If we keep the assumption that all engaged clients will stay engaged the savings flowing into the grandfathered accounts will be offset by the increased outflows of the engaged clients accounts to pay for services no longer discounting by passive revenue. If this lost revenue isn't replaced either profitability of FP businesses drops, they shrink in size and staff or they go out of business themselves causing a shrinkage in the tax base extracted from SME's. How far should we drill down to see the good and bad impacts?

The only reason a client will be paying more for a service they already receive is if you have been subsidising the fee with amounts you get from people (not clients) you do nothing for. There are not "some" of these people, there are hundreds of thousands, if not millions. If you can't see the problem with this you are part of it.

Jason I'm on your side ( i only have 5 clients paying me commission) but I don't agree with your logic and it's too flippant of a comment to say if you can't see the problem you are part of it.. It would be far easier to introduce Fee Disclosure statements and opt in to all of these grandfathered clients. So that individuals are fully aware they are paying for advice but by a commission. I don't agree with your logic because you're working on the model that a person comes into your office once or twice or a 4 times a year and you bill them.That's how I work now. However, not all people want that level of service and may for example want to pay a fee for adhoc services whether that be annually or every two years or a face to face appointment every three years and a phone call or whatever. We are now in a situation where the Govt has dictated what a "service" should be. For a client with no ongoing relationship where a SoA has not been provided it means a SoA needs to be done. The cost on an SoA is $2K $3K $10K , so you're proposing we turn off the $700 grandfathered commission and every 3 years we charge $2,000 plus for a SoA.

If that's what it costs to deliver the service that should be what you charge. The client will determine if it is good value.

What is being dictated is not what a "service" is, only how you can be paid. A structure/system that inherently results in a very large number of people paying money for nothing doesn't have legs to stand on. Only those with a vested interest in keeping the existing arrangements are defending it.

And yes not everyone in these products will be a winner because of the changes, but I'm confident a much larger proportion will be. It's unrealistic to think everyone wins.

There are two groups with vested interests. Advisers who receive more income from grandfathered commissions than they could by charging fees. And clients who receive more service for their grandfathered commissions than they could get if they had to pay the true cost.

Most people in this second group are older, have smaller balances, and demand a lot of advisers' time. Just wait for all the "victim" and "discrimination" stories to come out when these people no longer benefit from the cross subsidy provided by grandfathered commissions.

Isn't it the greatest good for the greatest number and not the greatest good for only those who can afford it ??

Jason, another point I would like to make about your comment (I might be reading your thoughts incorrectly) is "What is being dictated is not what a "service" is". In ASIC's "Fee for no Service" ten year look back, from what I hear behind the scenes service is exactly what is being dictated and by that I mean, service other than recommendation (either hold or move) is being excluded in ASIC's definition of service - which make the amount to refund look much bigger and ASIC look good (or bad if you realise it took them ten years to dream this up.

So I would challenge you on two points if I may - service is being dictated and, the way we charge the fee is being dictated and thirdly, the amount we charge is being dictated under BID. At least that is how I see it.

You've gone too far. You said you were only challenging me on two points.

Jason, please explain how inter fund advice is funded - paid by every member and delivered to only a few. Explain that.

What's to explain? I don't agree with it. You clearly don't either. The articles not about intra-fund advice and how it's paid for.

Jason what are you 12 ? You clearly have no in depth experience at all and a very clear lack of understanding as to what a clients needs actually are ... If you broaden your mind maybe you may get your head out of your .... The Institutions for getting us in this mess have come out of this unscathed .. in actual fact they are profiting from an advisers demise ...

Jason, please do explain to me how inter fund is charged and the reason I am asking you a second time is your statement
"A structure/system that inherently results in a very large number of people paying money for nothing doesn't have legs to stand on. Only those with a vested interest in keeping the existing arrangements are defending it". I am going to keep this one as it describes Inter fund advice better than I can.

You seem to think I'm defending intra fund advice by industry funds. I haven't mentioned it anywhere. In fact, I said I didn't support it, when you raised it. If you really need it explained I hear Google great.

This argument only works if the super funds hand back the grandfathered commission to the client, which based on history is hardly a given. Ask clients with insurance policies if their premiums have reduced even through advisers are being paid significantly less. Just like the whole churn lie with LIF the banks/super funds have pulled the wool over the eyes of Hayne, the government etc. The share market told you everything yesterday, the banks and AMP have not been hurt by the Royal Commission, the clients are no better off and yet again the only party to feel any pain is financial advisers (and mortgage brokers - a clear win for the banks).

Lets face reality here ladies and gentleman ... The whole situation was and is a complete farce !!! The Banks and Insurance companies win again ... No Fee for service .... No Risk Commissions ... No Ongoing Trails ...For Advisers No Business to Sell ... Who would buy them ? Thank god we have our associations looking after our best interests like the Sweet FA or simply know as AFA.. Must join Must Pay .. but well do sweet FA for you !! How goods that ...

A very large and well known Industry Super fund notes on their explanation of fees information that the annual Administration Fee includes "The cost of providing advice to ***** members.
So, this Administration Fee is in fact a continuously and weekly charged fee that incorporates a component for the provision of advice even if the member does not access advice.
This is therefore a " Fee for no service" if the member does not seek or receive advice.
As this is an automatic fee and not negotiable by the member, the member cannot elect to turn this fee off as they can with an adviser.
I have a client who has been a member of this fund for 30 years and has stated they have never sought or received advice from this fund and yet has been charged this fee for 30 years.
How does Kenneth Hayne assess this example of " fees for no service " ????
He does this by NOT addressing it all.
This is totally inequitable and the judgments resulting from the Royal Commission are biased and not based on a level playing ground for all parties.

Jason, how many of your client's have decades old superannuation products with high exit fees? Fees that if they were to withdraw, they would never financially recover, if they were to withdraw/rollout early? I have numerous of these, mostly with balances below $100k and many, much, much lower, that I don't earn a cent from. I don't charge them for recommending that it is in their best interest to retain them and not suffer this penalty. I do this because I care about these people. I understand that they paid someone else an upfront commission of 60 to 120%. Come July 1, with exit fees banned, I may recommend a different product, if it is in their best interest, But to service them from then on, will I charge them a fee. Yes, most likely. They will go into the user pays group. By the way mate, do you accept commissions on insurance products and if not, what is your fee for assisting a client on an income protection claim, spanning more than two decades? I receive commissions, so clients don't pay me any fee in that instance. And I have several of these claimants.

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