Product issuers rather than financial planners or dealer groups will have to do the heavy lifting of rebating grandfathered remuneration under the Government’s legislation banning grandfathered arrangements from 1 January, 2021.
A key element of the Treasurer, Josh Frydenberg’s announcement was that product issuers would be responsible for ending grandfathered remuneration, something which is consistent with submissions from both the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA).
The requirement is expected to generate a push by financial services product manufacturers to speed up the transfer of clients out of legacy products which generate commissions to planners and therefore reducing the consequent administrative burden.
The FPA had specifically used a submission to Treasury responding to the regulatory exposure draft to state: “The task of managing the rebating process should rest with product providers and clients should receive the full dollar amount of a commission as a rebate”.
In the end, the Treasurer, Josh Frydenberg pointed out that the legislation provided for the establishment of “a scheme that will provide that those people paying conflicted remuneration rebate clients for any remuneration that would be paid after 1 January 2021”.
Further, he said that to ensure that the benefits of industry renegotiating current arrangements to remove grandfathered conflicted remuneration ahead of 1 January 2021 flowed through to clients, the Government had commissioned the Australian Securities and Investments Commission (ASIC) to monitor and report on the extent to which product issuers are acting to end the grandfathering of conflicted remuneration”.
This is consistent with the exposure draft which stated that, “generally, the covered person is a product issuer and the other person is a financial adviser or licensee”.