The far-reaching effects of grandfathering

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Remuneration uncertainty for advisers will have a far-reaching effect.

Wealth Professional revealed last week that the grandfathering arrangements included in FoFA have placed restriction on movement within the industry. The regulations are also likely to impact on clients if they go ahead.

Hillary Ray, Consultant for Sparke Helmore Lawyers, says that it may be important to re-categorise remuneration in a different way altogether.

Going through the regulation, Ray says that she hasn’t felt “particularly enlightened”.

“The focus, from the ASIC perspective anyway, has been on putting in place regulations to produce good quality advice that genuinely looks at the clients best interests and that has been the focus.

“I guess nobody has looked at the other side of the transaction and the impact on the advisers.”

She recommends planners that have moved recently examine their remuneration arrangement very carefully and ensure there are no components that could be categorised as conflicted. They should also work out the structure of the remuneration, whether it comes from a product on a platform or not, and if any components might be caught.

However, Ray says that it is impractical not to use sales-based rewards in planning.

“Companies still have to reward their most productive sales people in some way, and a way that’s fair is to pay the sales people who sell the most, by giving them some sort of reward. That’s just sales.”

She says the most important thing is to make sure that the reward doesn’t influence the advice, and that one possible strategy could be to count the total number of products without looking at the particular kinds of products they sell.

"Personally I think companies should still be able to reward their most productive employees, otherwise what’s in it for the adviser or the planner?"

However, the grandfathering arrangements could also have an impact on clients if they go ahead.

AFA COO Phil Anderson says that if advisers do move, they may be forced to get all of the clients that are currently on trail commissions to change products, or arrangements.

“If you do need to get clients to move then there are issues such as CGT implications and potentially insurance impacts as well,” says Anderson. “So it would be highly disadvantageous for clients to be in a situation where their adviser needs to put them onto a new fee arrangement simply so their adviser can continue to be paid.

“It’s the individual that you’re most concerned about, because we’ve got advisers who are in the process of moving and they just have no knowledge of this so it’s a huge disturbance for them.”

Ray says that more guidance is needed from the regulator and that this is most likely needed in the form of additions to RG 246.

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