Both financial services and their clients will suffer dire consequences if the proposed changes to the grandfathering regulations are not heeded; say two of Australia’s biggest financial associations.
The Association of Financial Advisers (AFA) and the Financial Planning Association (FPA) have both made submissions to the Treasury in support of the grandfathering recommendations in the exposure draft on FoFA amendments.
Under current law any adviser who changes licensee after 1 July, 2013, will lose the ability to grandfather conflicted remuneration. The amendments propose that as long as the client maintains their interest in a financial product, advisers would have the ability to move licensees and continue to access grandfathered benefits.
In its submission, the AFA said forcing advisers to stay with their current licensees by preventing the retention of grandfathered benefits has caused a number of negative implications for both advisers and clients.
A lack of competition and complacent licensees due to a reduction in the risk of losing advisers is one outcome listed, and advisers who have lost confidence in their licensee but stay on anyway is another.
“This will unfortunately place the adviser in an ethical bind because they will need to trade off the issues with staying with a licensee that they are uncomfortable with, against the implications on their business from moving,” the submission asserted.
The AFA said the negative impact of this on competition and integrity within the financial advice profession is a very significant issue.
But it’s not just the advisers who will be affected; the clients will also suffer, according to the submission.
Having to change products or remuneration arrangements for products due to a change in licensee and loss of grandfathering will be confusing and time-consuming for clients, and could also potentially impact on their trust in their financial adviser.
“It’s difficult to see what benefits are available to the client to offset the disturbance and time involved in this,” said the AFA.
The FPA agree the current grandfathering legislation is problematic.
“The current grandfathering regulations impact on the fairness and equity of buying and selling of a financial planning business, a financial planner’s ability to change licensees,” it stated in its submission.
Dante De Gori, general manager of policy and conduct at the FPA, told Wealth Professional
the amended regulations would allow financial planners to purchase financial planning businesses and transfer employers while retaining grandfathered arrangements.
"The regulations will help remove current employment of trade restrictions and market competition that exists under current grandfathering regulations," he said.