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16 September 2019
The Association of Financial Advisers (AFA) has slammed the “double standards” of the Federal Government extending due regulatory process to insurers while denying it to the financial advice sector.
In a letter to members blasting the flawed process of banning grandfathered commissions, AFA GM Policy and Professionalism Phil Anderson questions why Treasury is including a proper draft regulation impact statement in its consultation about extending unfair contract terms to insurance, when the Government wouldn’t grant one when banning grandfathered commissions.
The 2012 Future of Financial Advice laws outlawed trailing commissions to advisers on all new financial products, but commissions on pre-2013 products were allowed to continue under a grandfathering arrangement.
The House of Representatives passed a bill last week outlawing these grandfathered commissions from 2021, under a flawed and rushed consultation process. The AFA says many advisers will go bankrupt because of the bill.
The letter quotes a recent speech by Commissioner Kenneth Hayne to the Melbourne Law School in which he says “decision-making processes [of government] … not only are opaque, but also, too often, are seen as skewed, if not captured, by the interests of those large and powerful enough to lobby governments behind closed doors”.
“What is the difference that would suggest that a regulation impact statement was required for extending unfair contract terms to insurance contracts, but not for the banning of grandfathered commissions?” Mr Anderson says.
“We can only wonder whether this goes back to the statement of Kenneth Hayne, and it is the difference between a number of large insurance companies and a large number of small financial advice businesses.”
He says the proposal to extend unfair contract terms to insurance also includes an 18-month implementation period, whereas in the case of grandfathered commissions the timeframe is much shorter despite it being more complicated.
“There will be no insurance companies that go bankrupt as a result of extending unfair contract terms to insurance contracts. However, banning grandfathered commissions, in the currently proposed timeframe, will result in many small financial advice businesses going bankrupt.”