The Coalition Government has released exposure draft legislation to ban grandfathering of conflicted remuneration paid to financial advisers.
Conflicted remuneration is where the payment of a benefit to a financial adviser may incentivise them to recommend to a consumer a financial product that may not be in their best interests.
Grandfathered conflicted remuneration can entrench consumers in older products even when newer, better and more affordable products are available on the market.
The Government’s reform will benefit consumers, as they will receive higher quality advice and stop paying higher fees to fund grandfathered conflicted remuneration.
In his Final Report, Commissioner Hayne recommended that grandfathering provisions for conflicted remuneration should be repealed. In its Superannuation: Assessing Efficiency and Competitiveness Inquiry Report, the Productivity Commission also recommended banning grandfathered trailing commissions.
In the Government’s response to the Final Report, we agreed to end grandfathering of conflicted remuneration effective from 1 January 2021. We are also going further by including an obligation on product manufacturers to rebate consumers for any grandfathered conflicted remuneration that would be paid after 1 January 2021.
To ensure that industry acts and the benefits flow to consumers, the Government has issued a Ministerial Direction under section 14 of the ASIC Act, requiring that ASIC undertake an investigation to monitor and report on industry behaviour in the period 1 July 2019 to 1 January 2021.
Last week, Labor proposed legislation to end the grandfathering of commissions which was found to be defective in multiple respects. Their legislation contained loopholes that would allow grandfathered remuneration to be retained by product manufacturers and not be passed on for the benefit of consumers.
The Government’s actions ensure that it is consumers, not industry, that benefit from the end of grandfathering of conflicted remuneration.
The Coalition Government is taking action on all 76 recommendations contained in the Royal Commission’s Final Report and, in a number of important areas, is going further. Restoring trust in Australia’s financial system is part of our plan for a stronger economy.