In its response to the royal commission final report released yesterday, the government has agreed to repeal the grandfathering provisions for conflicted remuneration, but not until 1 January 2021.
“Grandfathered conflicted remuneration can entrench clients in older products even when newer, better and more affordable products are available on the market,” the government said in its response.
“Grandfathering has now been in place for over five years, providing industry with sufficient time to transition to the new arrangements. It is therefore now appropriate for grandfathering to end.”
It also stated that from 1 January 2021, payments of any previously grandfathered conflicted remuneration still in contracts will need to be rebated to applicable clients where the applicable client can reasonably be identified.
“Where it is not practicable to rebate the benefit to an individual client because, for example, the grandfathered conflicted remuneration is volume-based so it is not able to be attributed to any individual client, the government expects industry to pass these benefits through to clients indirectly. For example, by lowering product fees,” it said.
“To ensure that the benefits of industry renegotiating current arrangements to remove grandfathered conflicted remuneration ahead of 1 January 2021 flow through to clients, the government will commission ASIC to monitor and report on the extent to which product issuers are acting to end the grandfathering of conflicted remuneration for the period 1 July 2019 to 1 January 2021 and are passing the benefits to clients, whether through direct rebates or otherwise.”
The Productivity Commission’s report into superannuation also recommended ending grandfathered trailing commissions.
It also agreed with the recommendation to prohibit the deduction of any advice fees from a MySuper account, other than for intra-fund advice, and limit deductions of advice fees levied on non-MySuper superannuation accounts in line with a recommendation for advisers to obtain an annual renewal agreement for these types of fees.
The annual renewal agreement, it explained, would require advisers to record in writing the services that will be provided and the associated fees, and mandate the express written authority for the payment of fees from any account held for or on behalf of a client given at, or immediately after, the latest renewal of the ongoing fee arrangement.
Currently, financial advisers are only required to seek clients’ agreement for ongoing fee arrangements for new clients after 1 July 2013.
The government said an annual renewal would help ensure clients “actively consider whether they are deriving benefits from ongoing fee arrangements”.
The government will also adopt the recommendation to require advisers to provide a written statement to a retail client explaining why they are not independent, impartial and unbiased before providing personal advice, unless the adviser is allowed to use those terms under section 923A of the Corporations Act.
It will also introduce a new disciplinary system for financial advisers requiring advisers to be registered and AFSL holders to report serious compliance concerns to the disciplinary body.
“This disciplinary system for financial advisers will operate concurrently with the existing AFSL regime, and ASIC will retain the powers it has under the current regulatory framework, including the power to commence investigations and undertake enforcement action,” the government said.
It also agreed to end the hawking of superannuation products.
“The definition of hawking should be clarified to include selling of a financial product during a meeting, call or other contact initiated to discuss an unrelated financial product,” it said.
The recommendation that each person should have only one default account will also be adopted.
The government also said it will amend Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Bill 2017 so that civil penalties for breaches of best interests’ obligations are extended to trustees of APRA-regulated funds.
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