The timing for the elimination of grandfathered commissions is a contentious issue for advisers, with no time frame ever going to be the right oen for those practitioners most affected by the measure, a senior technical services executive has said.
“It’s one of those hard things and whoever is in the middle of losing grandfathered commissions is never going to be happy for obvious reasons,” SMSF Association head of education and technical Peter Hogan told delegates at the industry body’s 2019 Technical Day in Sydney last week.
“A lot of people have said [former Labor MP] Bernie Ripoll should have done it when he made those FOFA (Future of Financial Advice) changes all those years ago and instead of grandfathering them he should have just got rid of them then – well he didn’t.”
Hogan admitted he could not categorically say the removal of grandfathered commission was a good thing because of all the practitioners it would adversely affect and described the policy as “very uncomfortable”.
“But the point is it’s never going to be a good time whenever you do it,” he said.
“The government is committed to the 2021 time frame of removing those grandfathered commissions.”
According to Hogan, the government’s deadline for scrapping grandfathered commission was already more generous than that of the Labor Party, which wanted the move to be made a year earlier.
Association of Financial Advisers (AFA) chief executive Philip Kewin also expressed concerns regarding the lack of guidance for affected advisers, considering the problematic situations they will now be faced with in navigating their clients into complying products.
“Financial advisers will need to spend a significant amount of time dealing with a variety of challenging situations. They will be required to contact their clients, review their circumstances and make a recommendation, which in many cases would involve an additional fee for that service,” Kewin noted.
“It will take some time for the product providers to prepare for these changes, meaning that the proposed window will not be sufficient for either the advisers or the hundreds of thousands of impacted clients. Financial advisers will also need guidance on how to confront this challenge, but none has yet been provided.”
As such, the AFA has called for greater consultation with industry regarding the measure along with a three-year transition period, as well as an exemption where current products incorporating commissions remain best suited for the client’s needs.
The government introduced a bill into parliament last week proposing grandfathered commissions be eliminated by 1 January 2021 in response to the recommendations of the financial services royal commission.