A Melbourne lawyer specialising in sales, mergers and acquisitions says he can understand if financial advisers are confused over the status of grandfathered conflicted remuneration – but he is certain clarity is just around the corner.
Adrian Lynch, senior associate at Nicholas O’Donohue & Co, told Wealth Professional the vague nature of grandfathering under the Future of Financial Advice reforms has been hard on advisers.
“It would be reasonable to expect that a lot of advisers are becoming fatigued by attempts to keep up to date with all these changes, because we’ve known they were coming for over two years and when they finally arrived, they were met with a wave of negative sentiment about them being over-regulatory, unfair and confusing. So I sympathise with advisers who say ‘you know what, call me when it’s all sorted, I’ve had enough!’”
Treasury released a regulatory impact statement last week which added extra information to its announcement on 20 December that the government would move on its election promise to clear up the confusing or unworkable elements of FOFA, such as grandfathering.
Advisers who rely on fees from product providers in order to supplement their income were at peril from losing this income source. While the Labor government had said the grandfathering status quo would continue for existing clients – transactions between advisers within the same financial planning licensee are safe – there are certain circumstances where it gets tricky.
“Most advisers were pretty accepting of this until they realised there could be some unexpected outcomes, if an adviser were to change licensee or if they were to sell part of their client book to someone outside their dealer group.
"The regulations didn’t make it clear that the adviser that’s changing licensee or the person that buys their client book could continue to receive that remuneration,” said Lynch.
Synchron head Don Trapnell – who last July declared a halt on hiring until the grandfathering issue was cleared up – told Wealth Professional this morning his dealer group will “absolutely” be taking on new advisers again due to Treasury’s announcement.
“We are open for business and recruiting again. Synchron effectively closed its doors to recruiting," Trapnell said.
“We’ve been through a ridiculous situation where advisers lost commission that they earned. Arthur Sinodinos has brought stability back into the industry, and competition back into the market.”
Treasury has said it will remove doubt in the law and clarify the position of grandfathering in respect to advisers who change licensee or sell their business or client books.
“What the changes are doing is making absolutely clear that in those two events advisers will not lose entitlement to grandfathered benefits,” said Lynch.
“I think it is quite simple now. There been various promises since the election that have given planners some comfort that their existing entitlements will be preserved.”
Lynch said although he “can’t say with any certainty” what the changes will be, he speculates if the client remains subscribed to the same product with the same product manufacturer, the adviser should be able to keep the conflicted remuneration despite moving licensee.
“What it avoids is an unfair situation where advisers feel they are locked in to a licensee, and it also allows advisers to transfer their books for a remuneration which is consistent with their pre-FOFA income stream.
“To not allow that would be a significant impact on advisers due to the detrimental impact it would have on their practice value. There would be no market – or a limited market – to buy businesses and client books.”
Assistant Treasurer Arthur Sinodinos has indicated the legislation will be drafted by early February, introduced to Parliament in the autumn sittings and passed during the winter sittings this year.
Lynch predicts while other FOFA amendments will be hotly debated, grandfathering will be relatively uncontroversial.
“There has been some immediate pushback from the Opposition and consumer groups as to what they perceive as a watering down of the benefits of FOFA. I don’t perceive that these grandfathering changes will receive strong opposition, because this clarification of grandfathering to allow business transfers is not inconsistent with policy objective.
“Out of all of the FOFA amendments I think grandfathering is the least contentious. I can say with a high degree of confidence that advisers will be able to transfer licensees and will be able to sell their clients books with confidence once the changes become law.
“Clarification on unclear laws is a good thing and the industry will be relieved at the position Treasury has taken on it. It’s a great thing for advisers.”
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