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Future of Financial Advice

FoFA doesn’t ban commissions

John Hewison
Founder and Director
28 Aug 2013

Contrary to popular belief, the government’s new Future of Financial Advice (FoFA) legislation does not ban product commissions. It bans commissions on products “sold” after 1 July 2013, but the billions of dollars that Australian consumers already had invested prior to that date have been “grandfathered” – that is a colloquial term for excluded in perpetuity.

So any commission based payments that were in place prior to 1 July are not banned and what’s more, do not need to be included in the new annual “Fee Disclosure Statement” (FDS) requirement. In other words, the client keeps paying but is kept in the dark. This literally applies to millions of dollars of annual commission payments coming out of client investments and paid to advisers who originally recommended the product.

The non-disclosure issue is bad enough but what is even worse is that advisers receiving these commission payments will be reluctant to recommend any investment changes to the client, regardless if it is in the client’s interest, because as soon as the commission paying investment is changed, the “grandfathering” ceases and the adviser has to (a) find an alternative way of charging and (b) justify the cost.

This “grandfathering” provision is just plain wrong and certainly not in the client’s best interests. The government has introduced some excellent initiatives in an attempt to eliminate conflicts of interest and enable consumers to clearly identify costs and service provided. However, this “grandfathering” provision is a compromise to the industry and against the spirit of the legislation, not to mention delivering fairness to the consumer.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.