Tuesday, 10 September 2019
Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019; Second Reading
In summing up, firstly I would like to thank those members who have contributed to this debate. The Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019 amends the Corporations Act to implement a key recommendation of the landmark Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
This bill will end the payment of grandfathered conflicted remuneration to financial advisers, with effect from 1 January 2021. Conflicted remuneration refers to remuneration paid to financial advisers by product issuers, which can influence the advice that they provide to retail clients about the product. When the ban on conflicted remuneration was introduced, in 2013, already existing arrangements to pay this remuneration to financial advisers were grandfathered, so the ban did not apply to them. It has now been six years since that ban was introduced; however, grandfathered conflicted remuneration remains a part of the financial advice industry. There is a clear need to end these grandfathered conflicted remuneration arrangements in the financial advice industry. As Commissioner Hayne said in the royal commission's final report, it is now clear that they have outlived their validity. Australians need to be able to access high-quality financial advice that they can trust, and this is critical to maintaining their financial wellbeing.
Grandfathered conflicted remuneration compromises this objective by entrenching customers in older, poorly performing products. This is because financial advisers may be unwilling to switch customers into newer, better products if it means the adviser will lose their entitlement to the grandfathered conflicted remuneration. To be clear, the total value of grandfathered conflicted remuneration is substantial. When ASIC looked at the value of grandfathered benefits in 2014, it found that on 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. More recently, the Productivity Commission found that 11 retail superannuation funds are estimated to have paid more than $400 million in grandfathered trailing adviser commissions in 2017.
Retail clients will be the major winners from this reform. The government's actions will mean they will receive higher quality advice and stop paying higher fees to fund grandfathered conflicted remuneration. The measures in this bill will not only end the payment of grandfathered conflicted remuneration; they will go further and require that any grandfathered benefits that remain in contracts after 1 January 2021 be passed on to the affected customers. This will ensure that the entities required to pay grandfathered conflicted remuneration, financial product manufacturers, are not able to keep benefits they would normally pay to financial advisers. The benefits must flow to customers.
ASIC will investigate industry behaviour in the period of 1 July 2019 to 1 January 2021 to determine whether the industry is passing through the benefits of removing grandfathered conflicted remuneration to consumers. They will complement action that we've already taken to drive improved consumer outcomes in the financial sector and ensure that misconduct in the sector is punished. This government is getting on with the job of delivering on the required reforms to improve consumer and small-business outcomes in the financial sector. Restoring trust in Australia's financial sector is part of our plan for a stronger economy. I commend this bill to the House.