The Financial Planning Association (FPA) has told the Royal Commission it is timely to review the appropriateness of grandfathered commissions and has recommended that grandfathered commissions be phased out over three years.
However, the FPA has argued that the carve-out in relation should be maintained in the short to medium term (at least three years) because the Life Insurance Framework is in its infancy and is scheduled to be reviewed by the Australian Securities and Investments Commission in any case.
The planning group has also pointed to the fact that the Future of Financial Advice (FoFA) had not succeeded in dealing with vertical integration.
In a submission responding to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry’s first round hearings into financial advice, the FPA has acknowledged that five years after the Future of Financial Advice it might be time for a change.
It said grandfathered commissions had “led to an environment where many clients are paying fees and yet receiving no services”.
“Ceasing grandfathered commissions and making all ongoing fee arrangements subject to opt-in will result in grandfathered fee arrangements quickly coming to an end where no services are being provided to consumers,” the FPA said.
However, in doing so, it noted that commissions were “by their nature part of a product cost” and that in most cases “the removal of an adviser does not provide any benefit to a consumer as the provider simply retains the amount that would otherwise have been paid to the adviser”.
It said that commissions had been built into the fee structure of many older products and that it was important to note that it was the product manufacturer who paid the commission for their fees and that it was “not a specifically client authorised payments”.