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ALP Ban on Grandfathered Commissions

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ALP ban on grandfathered commissions
another win for big end of town
MEDIA RELEASE
SYDNEY: 21 February 2019 – The Association of Financial Advisers (AFA) strongly objects to
the Australian Labor Party (ALP)’s plan to ban grandfathered commissions on investment and
superannuation products by the end of 2019, arguing that it will hand yet another victory to
the big end of town at the expense of small financial advice businesses and their clients.
AFA CEO, Philip Kewin, said, “Attempting to turn off grandfathered commissions in such a
short time frame will only serve to benefit institutions who will be able to hold onto them,
with no compulsion to pass any benefit on to consumers. Many clients currently receiving
advice services for these payments will lose access to them, without any reduction in their
fees.
“If the concern is that some advisers are receiving grandfathered commissions without
providing a service, then there are other options to address this issue, without negatively
impacting those clients who are in grandfathered commission paying products and are
happily receiving services and advice from their financial adviser.”
Mr Kewin said the argument that grandfathered commissions have continued for too long is
not reflected in the facts.
“There were zero cases of inappropriate financial advice as a result of grandfathered
commissions during the Banking Royal Commission hearings and research by Investment
Trends indicates that Grandfathered commissions have declined from over 30% of advice
practice income in 2010 to just 9% in 2018.
“At no stage have the objectives and potential consequences been discussed or debated. Both
Treasury and ASIC have confirmed that they have not done any research or investigation to
confirm the current level of grandfathered commissions or the implications of seeking to
remove it. Achieving the right outcome for clients is a much more complex proposition than
is appreciated by any of the proponents for a ban.”
Mr Kewin said the proposed ban is therefore simply an issue of political expediency, which
numerous stakeholders have sought to use in order to leverage political, media and
commercial benefit at the expense of small business and consumers.
“This is neither fair nor acceptable as it jeopardises the livelihoods of professional, hardworking
financial advisers. The potential financial and emotional impact on these people is
profound. Forcing a transition sooner than practical also jeopardises the ability for clients to
remain in an advice relationship. This is unnecessary, especially given that there are avenues
for a sensible transition available to the Government and Opposition to consider, should they
choose to work with the industry.”
Mr Kewin said small business financial advice practice owners have acquired businesses in
recent years that include grandfathered commission clients and have taken out loans to fund
these acquisitions on the basis of prevailing valuation methods. These small business owners
had no expectation that grandfathered commission arrangements would come to a sudden
end.
“The proposal to ban grandfathered commissions in such a short time frame will put them
and their businesses at genuine risk,” Mr Kewin said. “Who has done the work to understand
the consequences of this decision? What level of borrowings are based upon these valuations
and how many financial advice businesses will be put at risk of foreclosure?”
Mr Kewin said when the ALP introduced the Future of Financial Advice (FoFA) legislation into
Parliament in 2011, the current Leader of the Opposition, Bill Shorten, who was the relevant
Minister at the time, stated in a media release dated 29 August 2011 that based upon advice
from the Australian Government Solicitor the FoFA ban on trail commissions would not apply
to existing investment and superannuation business.
“We also respectfully remind the ALP that when they introduced the legislation and
grandfathered existing trail commissions on existing business, they did not suggest that it was
a transitional arrangement or that they expected it to disappear within a limited time frame.”
While the AFA recognises the recommendation of the Banking Royal Commission and the
intent of both sides of Parliament to remove Grandfathered commissions, it is calling on all
sides of politics to do it in a sensible, informed manner that will not jeopardise the interests
of financial advisers or their clients.
Media Contact
Julie Bennett
64 Media
Mob. 0407 071 121
julie@64media.com.au
www.64media.com.au
About the AFA
The Association of Financial Advisers Limited (AFA) has been the authentic voice on the value
of financial advice for over 70 years. Today, the AFA is a vibrant, innovative association, where
the underlying driver of policy is the belief that great advice transforms lives. To this end the
AFA is striving to achieve the vision of Great Advice for More Australians. The AFA’s ongoing
relevance as a professional association is derived from its success in engaging with the major
stakeholders in financial advice including advisers, consumers, licensees, product and service
providers, and the regulator and government. Culturally the AFA believes in the value of
collaboration to create powerful outcomes and this drives how we achieve influence and work
towards our vision.