Have product providers jumped the gun on grandfathering?

Financial advisers have expressed anger at the manner in which some major product providers have written to clients about the switch-off of grandfathered commissions before the Government has even legislated on the recommendations of the Royal Commission.

Responding to reports in Money Management about the manner in which major investment bank, UBS has downgraded its earnings expectations on AMP and IOOF and pointed to platform profits declining by as much as 30 per cent, advisers have pointed to clients receiving letters from product providers telling them how to switch off commissions.

One adviser specifically referenced ANZ’s OnePath as having written to advice clients telling them they could request the switch-off of commissions on their account without needing to contact their adviser.

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The advisers said they were angry that companies were looking to act on grandfathered commissions ahead of the Government’s 2021 switch-off date and the actual passage of legislation.

The letters sent to clients were understood to have been received ahead of the outcome of the 18 May federal election.

The Treasurer, Josh Frydenberg in late March announced exposure draft legislation to ban grandfathering of conflicted remuneration paid to financial advisers from 1 January, 2021.

He also announced the issuing of a ministerial direction requiring the Australian Securities and Investments Commission (ASIC) to undertake an investigation to monitor and report on industry behaviour in the period 1 July, 2019 to 1 January, 2021.

The Federal Opposition had signalled before election that it was disposed towards the almost immediate end to grandfathered commissions.

 




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Don’t forget the now “clarified” role of super fund trustees. The Hayne RC focussed on the fiduciary responsibilities of trustees to their members. One suspects that this is the first example of trustee bum protection that will increase in the near future. An adviser’s business model has nothing to do with the fiduciary test...

why wouldnt they protect their backsides? they have investors and shareholders...your trying to do the same. Also dont agree its nothing to do with Advisers so called business 'models'. Its actually to do with the culture of money for nothing,..and a lot of Adviser think sending a FDS each year is sufficient (in case of ASF). Also re commissions, if an AR relies on comms that have been banned since 2013, then it is an archaic business model dont you agree?

Heard this one the other day at a conference.

"I send them an annual FDS and/or offer of a financial review. I rarely hear back and sometimes I get 'return to sender' and the home phone is disconnected. What am I supposed to do if they have changed address and phone numbers and not told me?"

The answer is you switch off their fees and reinstate them if they actually come back.

It’s a hard concept for many advisers to get. Not sure why. Put themselves in the clients shoes. What would they ask for?

Have product providers jumped the gun? Of course they have. Will consumers benefit? Of course they won't.

We are lucky as only about 1% of our clients are still on gf comm. all of them are small and were not serviceable under Fofa. By pooling the income it meant we could still service them as they need it.
It’s very simple, if we receive notifications from onepath that the com has been turn off, we will simply orphan the client back to onepath, and the client will become their problem. Not carrying the risk if I’m not getting paid, nor do I feel comfortable charging a client with 10k in an account $1200 to provide advice. Perhaps onepath can offer cheap intrafund advice to their new client

Sounds similar to the practice on industry funds doing intra fund advice.

Well said. I have a basic trust problem here. I just don't like working with companies when I don't trust them to do the right thing for everyone (instead of just themselves).

one sensible adviser commenting on this topic. well done. Its just 'business' the smart business man once said.

Laughing, why do you assess the client's ability to pay a fee for advice against the balance of their super fund? Why wouldn't you meet with the client, determine what their actual advice needs are and then decide whether they are a client that you can help and make a profit from. Maybe they have other super funds that you're not aware of, or non-super money that they don't know what to do with, perhaps they need help with strategy that is unrelated to the particular super fund that you are the servicing Adviser on.

As an industry we need to get our heads around financial advice being about strategy first and foremost, the product and the person's balance is that last thing we should be looking at.

The vast majority of people in products with grandfathered trail would be better off in a newer product, there would be a fee saving in almost every instance. Why not charge a new SOA fee to these people to review their account and help them shift to a different product, even if it's an Industry Fund, at least you've done the right thing by them and covered your costs.

Time to get on with it. We've had since 2013 to do something about these clients.

did you not read what was written? What's left are the clients that aren't serviceable under fofa.
Apart from that, I've never adopted the Pokies or Slot Machine Principle of doing business. Sure if you drop enough coins in, you'll get the odd win here and there and maybe even a big pay out, however, its the very lucky few who recoup the cost of their gambling. Do I need to explain the analogy?

Well stated. Time to move on. Old days weren’t all that good for many people in super or pension funds.

So charge someone $2k to $3K to do a SoA so that they can save $100 to $200 per year ongoing. That won't meet the best interest test. Sounds like an AMP strategy. Seen many AMP advisers charging their existing clients $1,500 to $3,000 moving clients to AMP North and the net benefit is < $500

How have you seen this Adam?

Easy. Product providers buy the clients from advisers at 3x and then they can turn their fee off.
Clients reduce fees
Advisers pay down debt from purchasing legal businesses
Product providers wear the financial cost. Call it another fine for the past.
Gov claim they reduced fees and solved the grandfathering problem and also made the big end of town pay for it.

not easy, because why after paying you 10+ years of commission will they need to buy the clients off you?
If it was labor, they would have turned off all comms in 2013, if it was labor in 2019, they would be turned off now. don't look a gift horse in the mouth... Onepath and all other product providers can just write to clients and say we now provide free intrafund advice, you dont need any adviser and see how your business goes then...
Ill say it again, if your business still relies on Comms, Onepath knows your probably leaving the industry in the next two years to take up a job flogging EVs to greens party members.

You are a fool.
In 2013 it was Bill Shorten that asked for and received specific legal advice from the Australian Government Solicitor in relation to grandfathered commissions and FOFA.
He was advised to not include these in the banning of commissions going forward and therefore grandfathered them because existing contractual rights to receive these payments were in place then and exist now.
There was no time frame or future reference point at all as to if or when grandfathering were to cease.
A line in the sand was decided upon based on legal advice.
So, for you to state that Labor would have turned off commissions in 2013 in manifestly untrue and incorrect as they actually decided the complete opposite by electing for them to continue and be grandfathered indefinitely.

like sports bet, they paid out to early so to speak . what sort of crappy expensive is this onepath fund anywa6 to still be paying commissions. not sure whyy they didnt automatically move investors to a cheaper better fund and it would be a win win for advisers anyway. i get its a sting in the tail, but if advisers are genuine they are clients they have no relationship with anymore so cant charge a ASF. be honest advisers, you have recouped upfront costs and then some, now its just greed.

Whoops!...everything I just said was entirely wrong and I am sorry.
I wasn't really thinking straight as I have been drinking for days and am nothing more than a troll with an alternative agenda.
Many apologies again, but I have no control over my thoughts and comments.

those pesky trolls who dont agree in an echo chamber... terrible stuff.., Im scared of a civil discourse, ill just impersonate them. Your opinion is likely to be different to most of the FASEA exams questions though,..pretty sure on your current form, you wont pass the ethics exams either.

The ANZ OnePath letter is by far the worst I have seen to date. Aside from telling clients they dont need to let their adviser know, they justify the removal of trailing commission by saying "you will GENERALLY benefit". In other words we wont be guaranteeing the client will receive the full benefit from the ceasing of trail commission! This appears to be nothing more than a cash grab for ANZ at the expense of clients and advisers. Given legislation has yet to be passed to formally ban trailing commissions and the whole community expectation line will only cut it if the full rebate of commission is passed onto client. As commission arrangements are a contractual arrangement between provider and adviser and not the client, pending any ban by legislation, ANZ are effectively acquiring property from advisers without consideration. It would be very interesting to see how this stood up in court.

They are doing this because ASIC has "asked" them to I'd suggest ... or some lawyer has expancded the definition of client best interest and ignored other parts of the Corps law (the grandfathering bits put in in 2012/13)

Have customers got the legal right to vary a contract between 2 parties? My commission agreement is between the AFSL and the product provider. The commission agreement is not a tri party agreement. Has Onepath and others broken the agreements??

they probably would fall in legal trouble, that why they ask the client to direct them to turn it off....probably make suing not worth it. most clients wont even read the letter...they are just keeping ASIC happy and meeting so called 'community expectations'. typical labor/bureaucrats though..they decide what he community thinks (not saying its different in this case though).

ASIC/Govt intervention is playing out here guys!

Agree with Ben's comments, well said. However this is not the only criminal act that is occurring. Product providers are sending letters to clients who have insurance cover drawing down from their super fund. The letters vary in their understanding so God help the client knowing what to do if they open the envelope. No reply and the product provider will cancel the insurance cover. Many clients make an informed decision to leave funds in their super accounts to pay the annual premium. They do not intend to make contributions. It is a financial decision instead of using personal cash flow. Yes it can affect their fund balance. Fund growth can often off-set the insurance premium. Many clients forget to advise of a change of address so they do not get the letter. Their cover will disappear. Families are going to discover at death of their loved one (the insured) when they contact the product provider that the policy has been cancelled. Again isn't this a contract between 2 parties.
Providers will not provide lists of clients affected to assist the adviser contacting the client to ensure the client is aware of the consequences of the letters. This will affect so many!

The unintended consequences of such a ridiculous requirement by Govt is utterly unacceptable and the Govt should be held responsible for any adverse outcomes.
The Govt need to immediately refrain from imposing broad spectrum policies affecting so many people and leave the assessment of individual circumstances and client best interest duty to the advisers.
If a client is away over the period to 1st July and cannot be successfully contacted by their fund or their adviser and does not respond and loses their insurance cover, what happens in the event of a claim ???
The Govt will write to the deceased's partner, spouse , widow or children explaining why the process they enforced was in the best interest of the deceased in protecting their superannuation balance from the insurance premiums that were funding the proceeds to pay down the debt on their mortgage and save their family home if they died ??
Will the Govt then pay the family the same amount of money in order they don't have to sell the home and rent or look for public housing ?
This will happen, it is guaranteed.....and when it does it must be highlighted by advisers so any future Govt does not interfere to the detriment of the public.
Thought bubble...politically driven....no planning of unintended consequences before implementing..........disaster.

This is part of the government's Protecting Your Super legislation - thus, by definition, it is not illegal, or criminal. People need to take an interest in their financial arrangements sufficiently to ensure addresses and email addresses are updated, or else they risk consequences like these. And advisors will get lists of clients affected. If you're so close to your clients, why aren't you contacting them globally to let them know what's happening?

Fine in theory Geoff, but in this era of excessive disclosure clients have adapted by deliberately filtering out information sent to them about their financial products. They are sick of wading through endless documents full of rambling legalese forced on them to satisfy the requirements of compliance bureaucrats. With the proliferation of advice bureaucracy documents like FSGs, RoAs, FDSs, and Renewal Notices, clients have learnt to ignore most of what is sent by their advisers now too. Unfortunately, important details often get cursorily dismissed by clients as "more bureaucratic garbage" and are never read or actioned.

I take your point, but when you get an unexpected piece of mail from your superannuation company, in which you're investing probably the greatest sum of money you'll ever have over an extremely long period - it's probably a good idea to read it.

As they say, those who read the fine print get an education. Those who don't get an experience.

My point was that this wasn't an act of criminality - rather it's a communication forced by government legislation which will, in time, prove to have been extremely rushed and ill thought out and for which someone in the government's head really should be plattered. The superannuation companies are merely the unfortunate messenger, this time around. There will be unintended consequences, and severe ones, given the extraordinary lack of detail accompanying the legislation.

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