The SMSF Association says removing grandfathering arrangements for conflicted remuneration in relation to financial advice for retail clients “should be removed as soon as reasonably practicable”.
In a submission to the Financial Services Reform Implementation Taskforce, Association CEO John Maroney says: “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.”
But the Association stresses there must be a “reasonable time frame” to give advisers time to speak to their clients and product offerors to convert fee arrangements to fee-for-service propositions.
“To this end the Government’s announced date of 1 January 2021 is the most practicable nearest date to end grandfathered conflicted remuneration.
“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.
“It will ensure there is an orderly process for advisers to transition out of grandfathered-conflicted remuneration, sustain their business, and retain clients through appropriate fee arrangements rather than being forced into rushed and ill-considered fee offerings.”
Maroney cautions that ending grandfathered commissions prematurely will not necessarily reduce the cost of advice to consumers as payment comes from the product provider.
He says another challenge is that many grandfathered commissions are sold through 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.
“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.”