Consumers could miss out with rush to ban commissions
Consumers could be the ones to miss out with the Government rushing its bill to end the grandfathering of commissions on investment products.
The Financial Planning Association of Australia (FPA) supports the phasing-out of commissions on investment products as recommended by the Financial Services Royal Commission, but the bill introduced by the Government today has no additional details on how this will be done to ensure consumers benefit from the change.
“Removing commissions must result in a genuine reduction in product fees or the rebating of the commissions to consumers, and we haven’t seen details of how the Government expects this will work,” says FPA CEO Dante De Gori CFP®.
Just because a financial planner stops receiving commissions, doesn’t actually mean the consumer stops paying them through their investment fees. The cost of the commission is embedded in the fees, which is why the rebating and monitoring arrangements are so important.
Retirees could lose even more by giving up favourable tax and pension treatments on their existing investments if they are forced to move to new investment products, with the bill making no provision to prevent this impact.
“We are disappointed the bill allows only 17 months to complete a change that the FPA has recommended could take up to three years if the Government is to avoid unintended consequences for consumers, and the financial services ecosystem.
“More than fifty percent of FPA members have already made the transition and derive no revenue from commissions on investment and superannuation products. So it’s not about whether our members are willing, they are, it’s about making sure the transition is done carefully and diligently to protect the interests of everyone, especially consumers,” said Mr De Gori.
The FPA urges the Government to provide a full three-year transition period and release further details of the proposed rebating and monitoring scheme so they can be examined by the industry.