AFA News 22 July 2021. On 16 July 2021, the Government issued a report prepared by ASIC on their project to investigate the ending of grandfathered commissions.
ASIC was directed by Josh Frydenberg, the Federal Treasurer on 21 February 2019, to undertake this investigation. It has been extremely rare for the Government to issue a directive to ASIC, however shortly after the release of the Royal Commission Final Report, Josh Frydenberg chose to issue the Australian Securities and Investments Commission (Investigation into Grandfathered Conflicted Remuneration for Financial Advice) Direction 2019. The key directive was as follows:
Under section 14 of the Act, the Australian Securities and Investments Commission is directed to investigate the extent to which persons who are giving or accepting grandfathered conflicted remuneration, as at the commencement of this instrument, are:
(a) changing their arrangements to end the payment of grandfathered conflicted remuneration prior to 1 January 2021; and
(b) passing the benefit of ending the payment of grandfathered conflicted remuneration on to clients, whether through direct rebates or otherwise.
The report did reveal, some key facts that were obviously not known at the time the recommendation was made to ban grandfathered commissions and nor when the legislation was passed by the Federal Parliament in October 2019:
- Grandfathered conflicted remuneration in the 2018/19 financial year was $816m, and this included grandfathered commissions and volume bonuses/rebates paid to licensees. This is much less than the $2bn that was argued by Choice and covered in the media.
- This grandfathered conflicted remuneration involved 93 product issuers, 1,323 products and at least 2.5 million client accounts.
- In the 18 months from 1 July 2019 to 31 December 2020, $760m in grandfathered conflicted remuneration was paid.
- The majority of grandfathered conflicted remuneration arrangements were not terminated until the final quarter of 2020.
- Surveys completed by the AFA and the FPA suggested that between 75% and 93% of grandfathered commission clients were receiving some form of advice or service from their adviser.
This report revealed that grandfathered commissions were much less than some stakeholders had suggested and that the majority of clients were getting services, which is the complete opposite of what was hypothesised by the activist consumer groups. It is nonetheless, remarkable how little came out of a report that was activated on the basis of a power for the Government to direct ASIC to undertake an investigation, that has only ever twice been used.
Issued 22.07.2021. AFA Policy & Education Update
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