The recent government decision to end grandfathered commissions is a rushed and simplistic approach that puts clients at risk, according to an industry body.
The Association of Financial Advisers (AFA) acknowledged that the removal of the commissions was a necessary step, but the speed of the decision was a cause for concern.
AFA chief executive Philip Kewin said he was concerned by the lack of industry consultation, the limited framework and lack of guidance for advisers.
“We are particularly concerned that the bill to end the grandfathering of commissions on investment and superannuation products announced by the government this week does not adequately provide a mechanism for exemptions where the client is better off in their current arrangement,” he said.
“We are also concerned that there has been no assessment of the number of consumers impacted by this measure.”
Mr Kewin said the association disagreed with the assertion that the royal commission was an equivalent process to a regulation impact statement and said retrospective legislation created significant challenges.
“The removal of grandfathered commissions is actually highly complex and can’t be dealt with simplistically, and certainly not in such a short time frame,” he said.
Part of the complexity stems from the huge variety of products, systems and situations that would be impacted by this decision, said Mr Kewin.
“In some cases, this might be straightforward for the financial adviser and their client; however, in many thousands of cases there is a genuine risk that clients who are happy in their current product and receiving valuable ongoing financial advice and related services will either lose access to that support or be required to pay more to retain it,” he said.
Financial advisers would be required to contact clients to review circumstances and make further recommendations, but there was no guidance on how to confront this challenge, said Mr Kewin.
“It will take some time for the product providers to prepare for these changes, meaning that the proposed window will not be sufficient for either the advisers or the hundreds of thousands of impacted clients,” he said.
The AFA is instead calling for a greater consultation period, a three-year transition and provision for exemptions where the existing product is best suited for the client or where the client would be disadvantaged by changing products.
“Removing grandfathering in a manner that ensures that it works in the best interests of clients will take a lot of work by many stakeholders, and that takes time,” said Mr Kewin.
Nest Egg previously reported on the government’s endorsement of the legislation, which it said would benefit retail clients.
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