The Australian government has announced new rules requiring advisers to pass to their clients the benefits of any previously grandfathered conflicted remuneration remaining in contracts after 1 January 2021, a move that hits young advisers the most.
Consultation is now open for the Federal Government's response to Commissioner Kenneth Hayne's recommendation that grandfathered conflicted remuneration should be eliminated, following the recommendation from the Hayne commission.
Treasurer Josh Frydenberg has also issued a Ministerial Direction, requiring that ASIC undertake an investigation to monitor and report on industry behaviour in the period 1 July 2019 to 1 January 2021.
The regulations, released today, are designed to ensure that it is consumers, not industry, that benefit from the ban"
"The regulations, released today, are designed to ensure that it is consumers, not industry, that benefit from the ban," Frydenberg said.
"Grandfathered conflicted remuneration can entrench consumers in older products even when newer, better and more affordable products are available on the market.
"In contrast, Labor proposed legislation to end the grandfathering of commissions which was found to be defective in multiple respects. Their legislation contained loopholes that would allow grandfathered remuneration to be retained by product manufacturers and not be passed on for the benefit of consumers."
Frydenberg said the regulations will also impose obligations on financial product manufacturers to keep records on the amounts to be passed through to clients.
"These regulations mark another step forward as part of the Government's continued action on all 76 recommendations contained in the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry," the Treasurer added.
The Association of Financial Advisers (AFA) has warned of the impact of the ban on younger financial advisers. AFA chief executive Philip Kewin noted the many advisers who have recently acquired books of grandfathered commission clients as part of an initiative to build their business.
He said this had become a common strategy for younger advisers and often encouraged by their licensee or a related party.
"For these younger advisers, it was an opportunity to acquire a book of clients that they could then work with and, over time, transition to a fee-for-service arrangement," Kewin said.
"Quite often these younger advisers borrowed money in order to acquire these businesses and have large business debts that they need to service."