TIME'S UP FOR GRANDFATHERED COMMISSIONS

Friday's interim report from Commissioner Hayne demonstrates a fundamentally flawed culture within the financial services industry. Fees for no services, misleading the regulators and forcing people out of their homes are just some examples of the shocking conduct that has been revealed.

The Banking Royal Commission highlighted millions of dollars in conflicted remuneration (because they could reasonably be expected to influence the choice of financial product recommended by a licensee or representative to retail clients, or could reasonably be expected to influence the financial product advice given to retail clients by the licensee or representative) were still being paid in return for no advice. This is completely unacceptable.

Commissioner Hayne noted in his interim report that:

"After the commencement of the Future of Financial Advice reforms, payment and receipt of some forms of conflicted remuneration for financial advice was permitted to continue by ‘grandfathering’ provisions ... of the Corporations Regulations 2001.

First, despite it being recognised that the grandfathered forms of remuneration are conflicted remuneration, charging and receiving these exempted forms of remuneration have been permitted to continue. And even now, five years on, licensees and representatives can, and do, continue to charge and receive these fees.

Second, in 2014, when ASIC looked at the value of ‘grandfathered’ benefits, it found that, ‘[o]n average, licensees indicated that grandfathered benefits were worth around one-third of their total income (though substantially more or less than the average in some cases)."

"The key question asked by Commissioner Hayne was why should the grandfathering provisions remain? The answer is simple – they shouldn’t,” said Centre Alliance Senator Rex Patrick.

"This is a problem that can be solved, and can be solved quickly if the Government backs a bill I have been drafting in background. It will phase out grandfathered conflicted remuneration by 1 July 2020 and ensure that the value of any payments made after this date are rebated to clients."