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Almost all grandfathered remuneration schemes terminated: ASIC review

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About 96% of grandfathered conflicted remuneration arrangements that product issuers have in place with financial advisers were fully terminated before legislation removing the payment mode came into effect on January 1 this year, the corporate regulator says.

The Australian Securities and Investments Commission (ASIC) says the 96% figure covers 1227 products in the period from July 2019 to December last year.

Nearly all of these arrangements (1185 products) were axed last year, with the majority (837 products) terminated in the December quarter.

“Overall, the findings of our investigation were very pleasing,” ASIC said in a report reviewing the industry’s transition away from the arrangement.

“Nearly all product issuers ended [grandfathered conflicted remuneration] arrangements before January 1 2021.”

ASIC undertook the review at the direction of the Government, which acted to remove the payment scheme at the recommendation of the Hayne royal commission.

Under the new laws passed in 2019, previously grandfathered benefits that are given from January 1 are subject to the ban on conflicted and other banned remuneration, including where the legal obligation to pass the benefits on to product holders accrued before January 1.

A framework was also established for mandating the rebate of any conflicted remuneration paid on or after January 1 to affected product holders.

ASIC says product issuers estimated that $266.7 million was rebated to product holders over the review period, mostly through fee reductions.

There was no mandatory requirement to rebate to product holders during the review period.

Before the review period, 93 product issuers paid $816.1 million in grandfathered conflicted remuneration in the 2018/19 financial year relating to 1323 products and at least 2.5 million client accounts, ASIC says.

During the review period, 89 product issuers paid $760.5 million relating to 1273 products.

“This amount is reflective of the fact that most arrangements were only terminated towards the end of the review period,” ASIC said.

ASIC says during the review period, financial advisers changed the way they charged clients. Where appropriate, they moved clients to other fee arrangements such as charging an ongoing fee, an hourly rate, a fixed price or an asset-based fee.

The ASIC review is based on data obtained from the 10 largest Australian financial services licensees, who provided a list of all products on which they received grandfathered conflicted remuneration.

The surveyed population included 93 product issuers responsible for 1323 products.

Click here for the report.