Complexity of grandfathered commissions overlooked

In a new policy paper, Association of Financial Advisers general manager, policy and professionalism Phil Anderson argues that the complexity of grandfathered commissions has been overlooked by policy makers.

Anderson states in the paper that the 2012 Future of Financial Advice legislation introduced a number of bans that are relevant to the current banning of grandfathered remuneration - including conflicted benefits, shelf space fees and charging asset based fees.

"There has been much said about how financial advisers should have known that grandfathered commissions would be banned," Anderson said.

"Supposedly the writing was on the wall; however the reality is very different."

Anderson points out that during the Parliamentary Joint Committee on Corporations and Financial Services Inquiry into the FOFA legislation grandfathering was not the subject of any debate.

"A detailed understanding of the history of FOFA helps in understanding why grandfathering was never a point of contention and was never considered to be at any risk or considered to be a short-term transition arrangement," Anderson explained.

"It was always expected that it would die a natural death over time."

In the policy paper, Anderson cited Investment Trends data which showed that in 2010 grandfathered commissions made up 30% of practice income but by 2017 that proportion had dropped to just 9%.

"It is difficult to conclude anything other than, at best, there is extremely limited information available on the extent of grandfathered commissions and there appears to be nothing that provides any analysis on the extent of volume bonuses or shelf space fees," Anderson said.

"This all supports the view that we are operating in what can only be described as an information vacuum."

He added that the information vacuum becomes worse when considering the complexity that is involved in the implementation of a total ban on grandfathered commissions.

Read more: Phil AndersonAssociation of Financial AdvisersFOFAFinancial Services InquiryFuture of Financial AdviceInvestment TrendsParliamentary Joint Committee
Link to something IiqDbG3P