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16 September 2019
The passage of the bill banning grandfathered commissions last week leaves thousands of advisers and clients without any solutions about what to do, the Association of Financial Advisers (AFA) says.
It says hundreds of thousands of clients are now at risk of being worse off, facing additional costs or losing access to their adviser.
“We are deeply disappointed at the lack of analysis on the impacts of this reform and the lack of communication and guidance for impacted clients and advisers. At this stage there will be many thousands of cases where a sensible solution is simply not available,” AFA CEO Philip Kewin said.
This is underscored by the AFA publishing a “decision tree” flow-chart to guide advisers how to move clients off commissions and on to a financial arrangement known as an adviser service fee.
Multiple process paths in the chart end without any advice – “adviser action unknown” – or say to simply cancel the arrangement.
In a letter sent to members to “put our views on the public record”, AFA GM Policy and Professionalism Phil Anderson savages the way the reform was developed and implemented, with the AFA’s views on the necessity of keeping trailing commissions for some clients ignored.
It criticises the lack of a regulation impact statement and the lack of guidance from regulators, product providers or government as to how to address the requirements of the reform.
“It is apparent that our input … has not been taken into account and that none of our recommendations have been incorporated,” Mr Anderson says.
The letter also suggests that the debate about grandfathered commissions was captured by vested interests, and framed for partisan advantage.
Some advisers are using grandfathered commission clients as collateral against a significant level of debt, Mr Kewin says.
“We call on the banks to treat these financial advisers with respect and allow them time to adjust their business models so that they are viable in the longer term.”
The letter also accuses the Government of stripping advisers of the ability to apply for compensation under the Corporations Act in order to protect the interests of large financial product providers.
“This action has delivered a very clear signal to big business that they can do what they want to achieve the objective of this bill, and small business can expect no support from any quarter,” Mr Anderson says.
He adds that banning grandfathered commissions in the proposed timeframe will lead to financial advice businesses going bankrupt.
Grandfathered commissions will be banned from January 2021. The Australian Securities and Investments Commission is responsible for monitoring how product issuers act to end grandfathered commissions between now and then.