The SMSF Association has thrown its support behind the removal of grandfathered remuneration related to financial advice, but has called for time to allow advisers and product providers to make the move.
In a submission to Treasury’s Financial Services Reform Implementation Taskforce, SMSF Association chief executive John Maroney said: “We support the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry’s recommendation 2.4. Conflicted remuneration is an inappropriate conflict of interest that has the ability to create misaligned incentives and lead to poor advice.”
The association, however, has asked for a “reasonable time frame” to give advisers time to speak to their clients and product providers to convert fee arrangements to fee-for-service propositions.
“This should be the minimum amount of time allowed for a transition to ensure that removing grandfathered commissions does not adversely impact consumers and the financial services industry,” Maroney said in the submission.
“A number have taken out significant loans to fund these acquisitions with no expectation that the arrangements would come to an end, let alone a swift end. It is therefore important they are given to at least January 2021 to ensure their businesses and employees are not at risk and make appropriate arrangements for financing their business.”
He pointed out ending grandfathered commissions prematurely will not necessarily reduce the cost of advice to consumers as payment comes from the product provider.
Another challenge is that many grandfathered commissions are part of legacy products designed before the Future of Financial Advice reforms were implemented in 2013.
“This means advisers will need time to transfer clients from legacy products to newer products and consider the implications of capital gains tax events, Centrelink grandfathering, exit costs and other related transition issues. Many small business financial advice practice owners will also have acquired businesses that have been valued to include grandfathered commission clients,” Maroney said.
The government announced it would end grandfathering of conflicted remuneration to financial advisers effective from 1 January 2021 as part of its response to the financial services royal commission.