The Australian government has passed legislation through Federal Parliament to end the payment of grandfathered commissions to financial advisers, a conflicted remuneration worth up to A$2bn.
The Senate passed a bill to end so-called grandfathered commissions without amendments, after the House of Representatives green-lit the bill on September 10. Under the reforms, revenue from commissions paid to financial advisers from fund managers and other financial product manufacturers will be banned by January 1, 2021.
The government has also directed 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.
Consumers will benefit from lower fees following the removal of conflicted remuneration for financial advice"
"Grandfathered conflicted remuneration can compromise the quality of advice as financial advisers may be unwilling to switch consumers into newer, better products if it means the adviser will lose their entitlement to grandfathered conflicted remuneration," said Superannuation Minister Jane Hume.
"Consumers will benefit from lower fees following the removal of conflicted remuneration for financial advice," he added.
Conflicted remuneration is where the payment of a benefit to a financial adviser may incentivise them to recommend a financial product to a consumer that may not be in their best interests.
The Association of Financial Advisers (AFA) has previously warned the grandfathering ban leaves advised clients at risk of being worse off, subject to additional expense and/or losing access to their financial adviser.
"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.
The government is taking action on all 76 recommendations contained in the Final Report of the Royal Commission. Its interim report, spanning three volumes and 1,000 pages, concludes that Australia's banks have built every part of their operations around selling, to maximise profits, at the expense of serving their customers' needs.
The treasurer, Josh Frydenberg, conceded at the time that "from today the sector must change, and change forever".