The blanket assumption that an adviser will automatically lose their grandfathered revenue in the event they leave their current licensee is wrong and does not reflect the stated regulations on the issue, according to Adrian Lynch, senior associate for financial services at legal firm Nicholas O’Donohue & Co.
Lynch said given the conflicting messages from licensees around the issue it would be wise to wait for clarification - but the regulations allow for grandfathering to take place.
He said Section 7.7A.16 of the Corporation Amendment Regulation 2013 (No.5) confirms that when a planning business is sold or a client list transferred, any arrangement previously entered into will remain the same after the sale or transfer as long as the arrangement was entered before 1 July 2013, with the material terms of the “arrangement” preserved and the anti-avoidance rules not applying.
“A classic case of this is where a client moves to a new financial planner without changes to their underlying investment products, or where the planner moves to a new licensee and without making changes to their clients underlying investment products,” Lynch said.
“Anything else, which will see more changes, is not under the grandfathering provisions.”
This is a position shared by MLC Financial Planning, which stated on its adviser-focused Future of Financial Advice preparation website 'On Track’ that “where a client book is purchased before 1 July 2013, we believe that existing trail commission payments will be grandfathered, and can continue to be paid”.
“However, where you move a client into a new product after 1 July 2013, commission will not be able to be paid on that client’s account. This is the case even where the products are very similar, and the commission amount would have been the same on both accounts.”
MLC also advised its financial planners that in the event a client book was purchased after 1 July 2013 “we expect that the right to receive commission in respect of that existing book will be transferred to the purchaser and the conflicted remuneration provisions won’t apply to those benefits, as they were created under an arrangement entered into before 1 July 2013.”
MLC also stated that the Australian Securities and Investments Commission had said that whether grandfathering is preserved with the sale of client book was dependent on the form of the arrangement and how the transfer was made.
Merger and acquisition consultants Radar Results said the uncertainty around grandfathering was affecting the process of advisers moving between licensees, and was anti-competitive and unfair to financial planners looking to move to another licensee.
Radar principal John Birt stated in a submission made to the Assistant Treasurer Arthur Sinodinis that without changes to the grandfathering provisions, the value of planning businesses may fall and that between 2000 and 3000 planners may be affected.