Australia has passed legislation through the House of Representatives to end the payment of grandfathered remuneration to financial advisers amid criticism from the industry.
The bill will see the banning of grandfathered commissions from 1 January 2021 and follows one of the recommendations of the Hayne royal commission final report.
"To support this legislation and to ensure that the benefits of removing grandfathered conflicted remuneration flow through to clients, the government has commissioned ASIC to monitor and report on the extent to which product issuers are acting to end the grandfathering of conflicted remuneration in the period between 1 July 2019 and 1 January 2021," said Treasurer Josh Frydenberg.
In many cases, turning off grandfathering before the legislated date will only serve to stop advisers being paid"
However, the Association of Financial Advisers (AFA) has argued thousands of clients will be worse off without grandfathered commissions and a three-year transition period is required to allow advisers time to find alternative solutions for clients impacted by grandfathered commissions.
"We are deeply disappointed at the lack of analysis on the impacts of this reform and the lack of communication and guidance for impacted clients and advisers. At this stage there will be many thousands of cases where a sensible solution is simply not available," AFA chief executive Philip Kewin said.
In response, AFA called for a three-year transition period to allow advisers sufficient time to adjust to the changes.
He also called on product providers not to turn off grandfathering before the legislated 2021 deadline.
"In many cases, turning off grandfathering before the legislated date will only serve to stop advisers being paid, the benefit may not be passed onto the client and the ongoing servicing will be left to the institution providing the product," Kewin added.
"Some of these advisers have a significant level of debt that is secured by grandfathered commission clients.
The ASIC review will continue until the 2021 deadline.