Govt locks in 1 January, 2021 end to grandfathering

The Federal Government will move the legislation to end grandfathered commissions as of 1 January, 2021 in the Parliament on Thursday.

The Federal Treasurer, Josh Frydenberg announced the decision to introduce the necessary legislation in a statement issued today.

He said the move was in line with meeting the key recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

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Frydenberg said Government's reform would benefit retail clients, as they will received higher quality advice and stop paying higher fees to fund grandfathered conflicted remuneration.

He said the Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019 implemented the Government's response to the Final Report, to end the grandfathering of conflicted remuneration by 1 January 2021.

To ensure that the benefits of industry renegotiating current arrangements to remove grandfathered conflicted remuneration ahead of 1 January 2021 flow through to clients, the Government has commissioned ASIC to monitor and report on the extent to which product issuers are acting to end the grandfathering of conflicted remuneration.




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I don't have any grandfathered commissions but I am sick of governments knee jerk reactions without proper investigation and due diligence. I very much doubt the legislation will guarantee this windfall to the instos will be passed onto clients or what about the few clients that were happier or better off under the current system.
No lets not check or investigate just legislate and to hell with the unintended consequences just like FARSEA, LIF etc, etc, etc. This industry is all but finished except for the top 10% of the rich who will be the only ones to be able to afford advice in the future.

Why are grandfather commissions being banned - because there are members of the public who have these old and expensive products and some advisers may not be inclined to recommend better and CHEAPER products (that don't pay commissions) to the client because they will not get a commission any more.

Are advisers in this position acting in the best interest of their client or, their own interest?

No, inn't that Industry Super charging all members a fee for Intra Fund advice which has no Best Interest Duty and despite all being charged, is only provided to a few? Correct me if I'm wrong please.

Billy, I don't have many clients with grandfathered commissions, but most of those whom do, are elderly, with products that commenced when Centrelink concessions were much more generous. From a business point of view, I cannot realistically service them and earn a reasonable return (every business needs a profit or it won't be there) as they are not wealthy people. But i do service them, because I promised them I would many years ago when life and the burden of compliance was much simpler. It is quite simply in their best interests to maintain these products which do not offer fee for service option and the clients cannot afford to pay the fee themselves.

There's been plenty of investigations over the years with more recent reviews/investigations by theProductivity Commission and Royal Commission concluding that grandfathered commissions were not in the best interest of clients and were featherbedding the lazy life of some financial advisors.
Good on the Treasurer for his action that should have been taken by his predecessors.

Hedware, you are very simplistic and frankly, I wonder in who's interest it is for which you receive your living and could you prove you act in anyone's best interest? The regulators you refer to are I believe conflicted themselves and I believe, full of unqualified for purpose individuals seeking creditability. You clearly never ever have or will meet a client - your lack of knowledge in my opinion suggests you have a future in politics or regulation.

So the government wants to introduce a whole range of unnecessary legislation to remove grandfathered commission which will involve contract issues and unbundling of products that cant be unbundled rather than simply applying the Opt-in legislation to all products - total waste of political and tax payer time for a grand stand. Government for small business and reduced red tape? Unfortunately Scomo is falling at the simplest hurdles.

yes, agree, but happy to cause chaos with insurance opt in!!!

Please explain Mr Treasurer, how this will work on an annuity, with lifetime payments, set in stone, in place for over twenty years.

Same deadline as the FASEA exam. I expect a lot of older advisers will be targeting 31/12/2020 as their retirement date.

Yes - time for them to go. Obviously they don't want to work in the best interests of their clients.

Dear Hedware. Some of us really thank you for your constant stream of comments which always follow a particular slant. Those of us who do work as Financial Advisers can point out to our clients the different viewpoint that you always present and how they are so much better off than you because they are constantly experiencing what we competent advisers do for them. If you wish, I would love to sit down with you and help you with your financial affairs and you would then understand how important our advice can be. Facts, competence, diligence and efficiency beats whinging all the time. By the way, do you ware (sic) a beanie or a back to front baseball cap?

Hedware, since 1992, which regulator has conducted any investigation into Industry Super?

No Hedware, that is not obvious at all. Some advisers may fall into that camp, and it will be best for everyone once that small group retire. But the majority of advisers are well educated and do act in clients best interests. Many older advisers have done thousands of hours of CPD and have learnt much more than the content of a Masters degree as a result. But they get absolutely no credit for it from FASEA.

Many advisers provide services to their clients of a value that far exceeds the meagre commissions they receive in return. Retired clients with small super balances are great beneficiaries of this system, particularly in relation to maximising their Centrelink benefits. Once commissions are turned off it will cost those clients far more to pay fee for service for the advice they receive.

This attitude of regulators and the media to demonise and punish all advisers, rather than the poorly behaving minority, is ultimately doing consumers more harm than good.

Hedware( and all the other silly billy's out there),I've been reading your drivel for some months without comment. You are a fool who obviously has very little understanding about the history of the Financial Advice industry and your naivity is obvious.There are a great many dedicated financial advisers who built strong business's with very loyal and grateful clients because they had their client's best interest foremost at heart. You need to learn to appreciate they did not have a lot of control or say about the remuneration system at the time. As governments and regulators continued to change the rules, there were also many times when it was definitely NOT in the best interest of clients to change existing arrangements as much as it may have been desirable to do so ( ie: because of health or tax issues, etc .) There are a great many Australians who are going to find it extremely difficult to negotiate the financial complexities of life because of the current vendetta against experienced and very qualified Financial Advisers. God help them if inexperienced idiots and ideologists are all that's left to support them.

I agree with much of what you say, but still, FOFA came in back in 2013, bringing with it the Best Interest Duty. There are many businesses out there with thousands of clients sitting in legacy super products that could easily have been shifted to a more modern product. Take many AMP businesses for example, 1 or 2 advisers in the business, 4,000 clients all paying .44% commission on FLS accounts. Those advisers took the easy of option of resting on those commissions because any shift to a fee arrangement then meant exposure to the FDS and Opt In Regimes - but were they acting in the best interest of their client or themselves? it's pretty clear isn't it.

All clients that in old AMP FLS accounts should have been shifted to an AMP Flexible Super account or one of the North Products. Every client in a MLC Masterkey Super, Gold Star, whatever the product, should now be in an MLC Masterkey Fundamentals account. There would be no legacy issues to deal with, no exit fees, no CGT, just a straight swap to a newer cheaper product. That process should have started in 2013.....6 years ago!!! and now these people have still been given another 18 months to do it.

The argument is always that those types of businesses are the outliers not the norm or there's only a few bad apples that operate like that. That's all rubbish, a huge percentage of our industry operates on the premise that you get the client on board, charge them a fee or receive a commission, provide no service, and hope they can't be bothered moving to another Adviser or forget that they are even paying an Adviser. Nearly every client I've come across that has seen an adviser in the past tells the same story.

Time to stop crying about it and get out there and see all of those clients. Build yourself a real business full of people who want and need your advice and will pay for it.

"provide no service"....really Brett H ?
What's your average annual Fee for Service dollar amount Brett ?
Would someone with an account of say $100,000 or $150,000 and with a ASF of .44% p.a. make it into your business as a client ?
If the answer is no, then that has just eliminated a massive number of consumers from receiving either ad hoc, general or personal advice that is very often provided to these clients by advisers who are remunerated via grandfathered commissions.
They will be cast aside and forgotten and the direction of their financial advice will not be in their best interest.

Brett H, you seem to be a little inexperienced and in your mind it seems you have a good arguement and believe you would be acting in the best interest of the client but you are wrong. Someone in AMP FLS with say $200,000 an Adviser would be receiving around 880 pa. Seems like a reasonable fee but if that client is moved to say FS and the same fee charged, the world seems great. However Brett, that is very simplistic and in my world, you have just provided advice without an SOA and your banned. Additionally, if you do an SOA it will cost a good $1,000 plus implementation. For what benefit? If the client is in retirement phase? You are aware of the changes that were made to how they are assessed for age pension on 1-1-2015 I hope? Buy sell cost? And the clincher, it is not economic to maintain an ongoing relationship under FOFA for $880pa so the fees would need to increase in cases so really, it is not in the clients best interest to move. And i think that was the point of FOFA introduced by Labor. No surprise that the Industry Funds are experiencing massive inflows of cash. No surprise that Industry Funds charge all members for Intra Fund advice but do not provide it to every member let alone yearly. No surprise Intra Fund advice does not require bid. No surprise ASIC has never investigated Industry Super? Perhaps you should investigate the reality and not the tag line. I hope you are more careful if you are actually advising clients as you are responsible for your recommendations - regulators, Treasury officials and Politicians are not directly responsible or personally liable - but they all want media coverage.

Not experienced at all mate, I just understand that times change and you need to move with it. In your example of a $200k FLS account, the adviser has received $880 per annum for how many years? 10 years? for providing ad hoc service when the client contacts them...seems like a good deal to me. In that situation they owe the client a new SOA free of charge. What about the fee saving to the client for shifting to a newer product, could be anywhere up to 1% different if they looked at an index option, that's $2k per annum!

The rest of your comment is just dribble. Obviously you wouldn't shift a client who was in retirement phase if there was a negative impact on them.

That should be not "inexperienced at all". Had my own business for 12 years.

Don't let reality get in your way BrettH.

what reality - his maths seem ok to me?

BrettH - seems to me you have made your $2,000 costs savings simply by moving the client from Active Managed Funds to Passive - and that's it. The rest of your argument seems to assume the client has not been assisted for 10 years and they are owed an SOA for free. Even if the client has been around for ten years, many many hours of work assisting the client is typical - if you want to get the client to pay directly then the argument for commissions is simply the same as a fee - the client pays in the end just the fee compliance is much more expensive. Moving from Active to Passive and related fee reduction has nothing to do with Commission arrangements.

You're seriously arguing that the client is better off in the older FLS account, paying a commission, versus a lower fee Flexible Super account or another cheaper product? You could keep the same investment option and give them an immediate saving. It's the most ridiculous argument I've heard.

Are you aware that when a client is in a fee paying arrangement they actually have choice as to whether they are happy with the Adviser's service and can turn off the fee if they wish. In a commission paying product they can remove the Adviser but all that happens is they become an orphaned client and the licensee retains the commission...does that sounds like it's in the best interest of the client???

I'm assuming you're one of the gooses who borrowed against their house to buy a list of names paying grandfathered commissions at 3 times recurring revenue.

Stop wasting your time Brett. They'll never admit to being part of the problem.

Agent 86 - did you pay any attention to the Royal Commission? the fee for no service issues that arose? that's not just limited to the few groups they put on the stand, that's the norm. The advisers out there working in small businesses are the one's that are doing the right thing, providing service, but the big groups, which dominate the industry, charge fees for nothing more than sending out a letter suggesting the client get in touch with them if they want a review i.e. doing nothing.

Your reference to fee for service just shows you're stuck in the old mentality of providing advice, that every client should be paying an ongoing fee. Some need it, some don't. If you're ethical then you'll tell clients when all they need is a one-off advice piece of advice and that an ongoing service arrangement wouldn't benefit them.

All those clients you're talking about don't even know they are paying an Adviser a commission. They fall outside of the FDS regime.

Brett H, you fail to also understand that some of the older trail commission paying products have large exit fees charged to the client upon rollover. I have recently seen one where the exit fee on a $120k account was $4,400. What do you do with this client. The trail received will be a bit over $500pa but in your all commission is bad world you would not be able to pass this client in a BID test just to continue to receive advice. In particular you will always fail BID test if your advice fees were the only driver for this client to change products was so an adviser can charge a higher fee for service!!!!!!!!!!!!

I'm fully aware of the exit fees on some old products. Are you aware that many of these have now been waived? MLC have waived all exit fees on their old Gold Star products.

With your client you need to go to the product provider and point them in the direction of the new legislation banning exit fees - get them to remove it.

As far as the commission goes, why wouldn't you rebate the commission to them and then charge them a fee, if you charge them the same fee as what the commission amount is, then they actually pay less because the super fund will rebate some of the GST credits they receive, but you still receive the same.

I use FirstChoice in my business, had a whole bunch of clients paying the 0.6% trail plus an adviser service fee of 0.4% to give me 1.0%. I Changed them over to the Wholesale product years ago, Colonial rebate the buy/sell spread so there's no loss to the client and now I have no grandfathered commission to worry about, same client base and no issues.

I am aware many have been waived but not all. It comes back to contract law. The client entered into a product with a contractual right o pay the exit fee if they leave before a certain date. In the case I am looking at currently (*I am not the listed adviser) it is an AMP product.

Go figure, this is to point out that we are not in a perfect world and sometimes to do the right thing you may have to do the unpopular thing!

Its nice to see someone else realise this, Brett.

I like your example of 4,000 clients between 1 or 2 advisers. I know a couple practices with 10,000+ clients between 1 - 2 advisers.

We are directing all the blame at the government, but in reality, these advisers are the ones that have brought this change about through sheer greed. There is absolutely no excuse to have a client in a grandfathered product unless its for centrelink purposes. I do not believe that advisers can have thousands of clients all in this basket. It is SOLELY so they dont have to service them, allowing them to have a higher income stream for less work and earn more. This is also why some financial planning books were selling at prices as stupid as 4x revenue....

Wake up people and take some responsibility.

For many of these clients, there ongoing service fee agreements were based on the level of trails or trails + an additional service fee. If services to those values have been delivered then no problem adjusting ( assuming product type allows and in clients interests strategically), all to fee for service. The problem with the argument becomes the example of 2 advisers, 4000 clients - you simply can't deliver service to that many. You can't sit back anymore and say, no service for a few years, but we'll catch up and deliver 3 years worth of value in 1 year later on - that argument doesn't wash any more because it was abused by many - the 4000 client example. So, yes, many have to pay for the sins. That's life.

SD, how many client should one adviser have? I ask as I'm thinking of getting a job with an Industry Fund like First State. They only charge a client around $2,000 for advice with an SOA, and usually don't have an ongoing service arrangement - an the pay is good. Obviously someone is paying for it all but to quote old Sir Joe, "don't you worry about that". How do they do it - magic?

Why would we compare ourselves to limited, scoped industry fund advice? Its cheap for a reason, it doesnt cover much.

Id be very surprised if anyone can actually properly service over 200 clients per adviser.

Advisers unfortunately have to have a limited client base. Salespeople who flog superannuation funds or are subsidized in return for FUM don't actually have clients they have customers and that's unlimited. You are after all talking about a firm that a few years ago had it's AFSL conditions preventing it from recommending basic banking deposits. i.e cash.

Recently on at least 3 occasions , Treasury has been formally requested under the Freedom of Information Act to release the Australian Government Solicitor's advice in relation to the banning of commissions provided to Bill Shorten in August 2011 , who was then Minister for Financial Services and Superannuation.
It is understood that every approach to secure this advice provided to Bill Shorten in relation to this matter has been rejected and again subsequently rejected following appeal.
On 29th August, 2011, Bill Shorten stated:
" Following legal advice from the Australian Government Solicitor, the Government has determined that a ban on conflicted remuneration (including the ban on commissions) WILL NOT APPLY TO EXISTING CONTRACTUAL RIGHTS OF AN ADVISER TO RECEIVE ONGOING PRODUCT COMMISSIONS".
THIS MEANS THAT IN RELATION TO TRAIL COMMISSIONS ON INDIVIDUAL PRODUCTS OR ACCOUNTS, ANY EXISTING CONTRACT WHERE THE ADVISER HAS A RIGHT TO RECEIVE A TRAIL COMMISSION WILL CONTINUE AFTER 1 JULY, 2012 OR IN THE CASE OF CERTAIN RISK INSURANCE POLICIES IN SUPERANNUATION, 1 JULY, 2013.
THIS MEANS THAT TRAIL COMMISSIONS WILL CONTINUE TO BE PAID IN THESE CIRCUMSTANCES".
So, exactly what advice did Bill Shorten receive from the Australian Government Solicitor that determined a change in the treatment of existing contractual rights of advisers to continue to receive commission payments would present the Government with a problem ?????
Josh Frydenburg should immediately refer this matter for investigation and have this information made public.
This legal advice was provided to the then Labor Government and was specific to the issue of a blanket ban on existing product commission payments.
In August 2011, Bill Shorten made a very clear decision to accept the legal advice provided and determined it was not appropriate to include the existing commission payments in the banning of future commissions included within FOFA.
This advice must be released under FOI .
If it is again refused to be released then why is it being withheld ??

It will be interesting to see how the changes of products and conversions of products occur when exiting Statutory No.1 Capital Guaranteed products start getting moved to Market Linked products and early exit fees start kicking in just because you want to turn off the commission.

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