Time to end grandfathering, says FPA

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.

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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”.

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Has the FPA canvassed the opinion of the people they are supposed to represent on this? Goodbye FPA

Yes. They canvassed the only members that count. AMP Financial Planning said we need to turn the spot light off us, is there anyway you can help us. The FPA then said how about we turn the spot light back onto planners again.

yet again the FPA throws their members under the bus.....what happens to those advisers that have purchase businesses with trail commission clients? How will they be compensated in all of this?

Posted on behalf of 'Steve'
The comments by ASIC during the Banking Royal Commission indicate they have absolutely no idea how advisers run their business, what costs they need to cover or what they actually do.

For example, completing FASEA University Degrees, doing ongoing Professional Continual Education, employing staff to provide regulatory information to clients (FDS & Opt in notifications), Fund research, paying PI Insurance premiums, funding upgraded IT server technology costs & ongoing administration support has absolutely nothing to do with providing & invoicing clients for “Financial Advice”.

The bulk of what many adviser offices is provide administration support to stop their clients losing their super funds & insurance to the ATO. “Financial advice” might be lucky to be 20 percent of what they actually do.

This is why it necessary for clients to pay some form of minimal regular support admin fee, as similarly charged by the Fund Managers & the Industry Funds. This needs to be explained very clearly in the coming months.

Recent comments by the FPA leadership indicate similar levels of naivety.

Note. The FPA has called for the immediate removal of pre 2013 payments related to volume based payments and a 3 year transition. The sheer arrogance of the FPA is shocking. They're getting undisclosed and hidden payments (commissions/conflicted remuneration) from AMP Financial Planning/ Commonwealth Financial Planning etc etc and bundling them up (hiding them) and declaring them as members fees (deceptive) in their annual reports and they are the ones calling for commissions on grandfathered products to be removed! The lack of leadership for all these years in this area around the relationship of product and advice and now here we have the hypocrisy of the FPA in issuing this statement. it's just disgusting and shocking. Just why renew member fees in June?

Talk about lapdogs trying to appease anyone who appears in power! The FPA is a joke. They have already been identified as 'a member association and not a professional body' (and in the RC opinion never will be), so why not go back to representing your members? As Researcher above said, the first step in that case is canvassing all your members so you can truly represent them, not your own half baked ideas. Wouldn't be that hard for such major proposed changes, if they simply sent out a brief questionnaire like they did with that horrid education one recently, I am pretty sure they would get more than the 4000 odd replies this time. Will gladly be saving my membership dollars from now on.

We have a very small percentage of these clients who have no problem and are aware and understand the fee or commission and are happy with this. Having said that, the extra work involved with incorporating this into a disclosure regime benefits no one, and if anything will make everything more expensive.

Total incompetence from the FPA once again. I would be happy to move over to fees for all of my clients but some product providers will not rebate the commissions back to my clients and I can't roll these clients over to other products because they would incur massive CGT bills. So what the FPA is proposing, is that all of these clients should be forced to pay higher fees for their advice or alternatively, the clients are denied advice despite paying for it. How on earth is this a win for consumers?

The only way this would work, is if product providers are forced to give financial planners the option to reduce client fees in return for waiving the commission, and this option must be available at the beginning of the 3 year period to allow advisers to manage the transition. Otherwise, there will be a massive transfer of income from independent financial planners over to the banks, and the affected consumers would lose the ongoing advice they are paying for.

I won't mind if the FPA drives this.
But at the same time they should all take a 35% pay cut from the CEO down.
35% of my revenue is from old pre-Fofa products. The products do the job and the clients are happy. 65% of my revenue is fees as we have run a hybrid way of charging clients for about 15 years.
I run a totally non-aligned advice practice with three senior advisers. Add in the support staff and the overheads and think how such a change would impact on us. Someone will lose their job.
We left one of the big bank groups years ago because they tried to force us to use their internal products. They used compliance as the weapon against me. It did not work, I told them to shove it. Product providers should not be able to use the word "adviser". A person working anywhere representing a product is a salesperson. These are the fights the weak-kneed FPA should be fighting. The current CEO (and the one before him) are lightweights.
I think the FPA needs a “Members Commission” to investigate how it operates. It is totally out-of-touch with how we the people who pay their wages operate.
I will be very vocal on this matter at the forthcoming roadshow.

Good luck with that but the FPA just simply don't care. My advice is to leave and let's set up another association. A lot of people have been very vocal. Myself included Senior Management have said if you don't like it then leave. The fact of the matter is the FPA are too in love with their professional partner program to look after ordinary Australians needs anymore. They are fixated on looking after the needs of AMP Financial Planning first and foremost.

I'm afraid that may be true.

If you delay, postpone and put off or you take more than 12 months to come to a decision to address a complaint about cashing out a SASS benefit and during this time you appear 12 times on Sam Henderson's TV show... then is that not smelly to anyone? FPA you've got your own mud to clean up.

Simply do not be a member of the FPA if you feel that they no longer support you

It's just astonishing that the FPA would pander to this unelected and taxpayer-subsidised Royal Commission. They know perfectly well that planning practices are small businesses which cannot afford to lose grandfathered commissions which were legitimately agreed to by their clients with whatever financial planner saw them last. Small businesses that paid good money for the rights, yes, RIGHTS, to those regular commissions which were entered into by clients of their own free will. And not once have they mentioned the clients who will be the losers out of this!

I'm not in the habit of criticising the FPA, but if this statement (and sentiment) is accurate, it is a woefully ill-considered position to adopt, with destructive consequences for all concerned. The industry has been transitioning from commission to a fee models since well before FOFA, and as a result we are already witnessing higher service standards, technological innovation, and lower costs. But in the real world, full conversion is a gradual, lengthy process - this was the whole point of 'grandfathered' commissions in the first place. That is, to usher-in sweeping reforms while avoiding undue financial hardship, by giving practices the necessary time and certainty needed to develop sustainable business models that would ultimately benefit everyone. To now actively encourage an arbitrary three-year transitional period would be a gross breach of trust between the FPA and its members, no to mention commercially irresponsible. The FPA needs to immediately retract its statement.

You can't retract a statement to the Royal Commission. If you're not criticizing the FPA you are not a professional adviser and you're happy with the status quo. Rick if you're an FPA member you are clearly complicit with the behaviour of AMP Financial Planning and CBA FP as well. They are your members. The commissions they pay the FPA via the professional partner program appear right next to yours on the balance sheet. FPA members who are silent on this issue are no better than AMP Financial Planning.

This is amazing and hypocrisy at it's best.
Bye bye FPA. You've just lost 1 member.

Fpa Members need to revolt like the CPA members did. The FPA does not serve its members (unless they are a bank or AMP)

Thank-you FPA. As a long standing and loyal Member I encourage you in your efforts to destroy my business, because by the time the next Director Elections come around I will no longer be a Member, or an adviser, so won't be able to vote out those incompetents supposedly running your boat.

Dodgy bribery payments to the FPA ok, grandfathered commission not ok. The same bribery payments used to gain the support of the FPA on the disastrous LIF for customers and independent members and a bonus for vertical integration. The FPA are a corrupt disaster and need to be closed up.

You cannot be a professional financial adviser and belong to the FPA. It's just not ethical. In the words of the FPA policy director. If you don't like what the FPA are doing by accepting commissions from CBA/AMP then just leave. So just leave I say. Don't renew membership fees go somewhere else. If you're unhappy that the AMP advisers gets a 10% discount off their fees then just leave. If you're unhappy that FPA members are are before a royal commission than just leave.

Well done FPA. Shame it took a Royal Commission to force their hand.

An association of professionals puts the interests of the community ahead of their own interests.

This clearly isn't the case for many making contents on here.

You don't think it's hypocritical that the FPA gets commission from CBA Financial Planning and hides them within members fees on their balance sheet?

What is the point of electing board/directors if they have clearly lost there touch with the actual members?

The issue of removing grandfathering has been on the horizon for more than a few years now and has degrees of complexity. In light of the RC it is pretty clear that they are conflicted remuneration and something had to be done. Volume based rebates still persist in the industry and are clearly conflicted. If you don't remove them there is an incentive to continue to convince yourself that placing new money into existing platforms is the right thing to do. Then there may be insurance/cgt issues. However, in most cases you can turn off a trail and have it replaced by a fee for service in agreement with the client. And if you can't now, I'm sure after the RC that some of these older products will allow it. If you bought a practice on multiple of trails, well, you can't say it wasn't foreseeable they would turn it off. And anyway, you bought the practice with a view to servicing the clients didn't you? Or were going to play golf and just accept the fees. If you were going to service them, then nothing changes - you just have to have a conversation with your clients and change them to fee for service after explaining your value to them. Perhaps this is more where the fear and outrage calls are coming to. This is the basis of the RC - explain and have your clients pay you directly for the service you provide.

I understood that the issues raised by the royal commission were not around "commissions". Is this correct?

No, they were very much about commissions. At one level unserviced trails and why weren't they turned off when it was apparent no services were being delivered. At another level why were old products that paid commissions kept in significant numbers when conflict arose due to volume based payments, upfronts still able to be paid on older products, and trails. And that the grandfathering regime possibly enhanced this problem.

thanks for clarifying.

Issues around commissions were at the product provider level. Not at the adviser level. AMP for example elected to not turn off commissions and adviser service fees for their orphan clients that they purchased back from retired advisers. We've now managed to turn this back to blaming individual advisers. Even Barry Lambert ex Count Director that has thousands of orphan clients was quoted in the media telling advisers to pick up their game. Does Count still get commissions from Orphan Clients today? I believe the RC indicated they do.

I'm currently a young compliance person at AMP. I don't think they've been turning off adviser service fees. This is the especially the case when they purchase a retiring planners business and park them in what we call the sess pool awaiting a new adviser to come along. I think this is just wrong. I've tried to tell my senior manager but I'm afraid I'll lose my job and I'm pregnant with 15 children and my Husband is now on a TPD claim. I've thinking of telling the FPA but AMP pay's my FPA fee for me and also AMP Financial Planning pays them a lot of money via their professional partner program and brings them a lot of new AMP members every year. I am pretty confident because of this relationship they'll just laugh at me. I thought this was what "professional associations do' i,e represent members. What should I do? I reckon if this news gets out it will damage all planners regardless of who they work for. So don't tell anyone please. However... Please help I think they might even appear before a Royal Commission soon.. Kind regards... confused.

The 2017 financial statements for the FPA are an interesting read (however one might be implored to ignore the 'platitudinal drivel' in their accompanying annual report). 'Administration' and 'Employee Benefit Expenses' soak up 82% of total membership subscription revenue. They might not exist in Australia but for their exclusive licencing 'deal' with the CFP Board in the United States. I wonder if that board is aware of the shenenigans in OZ. Ms Rowena Orr assisting QC might be inclined to let them know perhaps? Their email address is as follows: [email protected]

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