28 March 2019

Taking action on the Banking, Superannuation & Financial Services Royal Commission

Recommendation 2.4: Grandfathered commissions

The Coalition Government has released regulations today, outlining the requirement for financial product manufacturers to pass through to their clients the benefits of any previously grandfathered conflicted remuneration remaining in contracts after 1 January 2021.

The regulations will also impose obligations on financial product manufacturers to keep records on the amounts to be passed through to clients.

These regulations mark another step forward as part of the Government’s continued action on all 76 recommendations contained in the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

Conflicted remuneration is where the payment of a benefit to a financial adviser may incentivise them to recommend to a consumer a financial product that may not be in their best interests. Grandfathered conflicted remuneration can entrench consumers in older products even when newer, better and more affordable products are available on the market.

In his Final Report, Commissioner Hayne recommended that grandfathering provisions for conflicted remuneration should be repealed.

The Government has already released exposure draft legislation to ban grandfathering of conflicted remuneration paid to financial advisers from 1 January 2021. The Government has also issued a Ministerial Direction, requiring that ASIC undertake an investigation to monitor and report on industry behaviour in the period 1 July 2019 to 1 January 2021.

The regulations, released today, are designed to ensure that it is consumers, not industry, that benefit from the ban.

In contrast, Labor proposed legislation to end the grandfathering of commissions which was found to be defective in multiple respects. Their legislation contained loopholes that would allow grandfathered remuneration to be retained by product manufacturers and not be passed on for the benefit of consumers.

The Coalition Government is taking action on all 76 recommendations contained in the Royal Commission’s Final Report and, in a number of important areas, is going further. Restoring trust in Australia’s financial system is part of our plan for a stronger economy.

The draft regulations are available on the Treasury website.