Game over for grandfathered commissions

As far as the Productivity Commission is concerned, grandfathered commissions are dead in the water.

In its final report the commission states that the time for transition is over; "the commission supports a full ban of all commissions on superannuation products, which will likely have the effect of reducing the fees currently paid by members of some retail products."

Referencing the Royal Commission, the Productivity Commission said grandfathered commissions promote conflict, increasing the potential for misconduct and doing little to ensure the best interests of the client are met.

Taking aim at key advice associations, the Productivity Commission said organisations representing advisers have argued for the retention of such arrangements as members could face additional costs if the trail commissions are removed.

"It is not clear to the Productivity Commission how extending transitional grandfathered trailing commissions could be in the interests of anyone other than the advisers receiving them," the report reads.

A survey sent to Australia's superannuation funds by the Productivity Commission saw about 30% of the 114 funds that responded indicate their members are paying trail commissions, however the percentage of members was not disclosed.

From this, the commission said it can be inferred that at least 2% of all accounts in the super system are subject to trailing adviser commissions. This is likely a significant underestimate given the gaps in data, the commission said.

Trail commissions represent an impediment to switching to more cost-effective options and "some trustees have an unhealthy predisposition not to voluntarily remove these commissions even where it may be in their members' best interests," the report reads.

Data collected by the Royal Commission indicates trail commissions for 11 of the largest retail super funds totalled more than $400 million in the 2016-17 financial year. Six of these same funds were also among those reporting the highest advice fee revenue in APRA's 2018 data, the report states.

"All commissions through superannuation (including on insurance) should be banned as soon as practicable. This will reduce the fees that members pay - especially those in retail funds - and remove a clear financial incentive for advisers to discourage members switching to better products," the commission said.

Read more: Productivity CommissionRoyal CommissionAPRA
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