If there was one thing that stuck out as a ridiculous unintended consequence of the Senate’s disallowance of the government’s FOFA regulations it was the anti-competitive impact of the removal of the grand fathering clause.
Under the Government amendments financial planners, most of whom are small business men and women, were free to strike out on their own, or with another licensee, if they felt they could do a better deal with a new licensee (under whose license they normal operate) and still retain the commission trail they had built up over the years.
This meant the big banks and AMP, who currently control around 80% of licences, had no way to hold them and thus new planning groups aligned to changed community expectations could evolve to serve those changed customer expectations.
But last week’s changes meant that with grandfathering gone, financial planners were effectively tied to the big 5.
If they left, they lost their trail, which went not to clients but back to the the licensee.
Last week Deborah Kent, President of the Association of Financial Advisers told Business Insider that “the actions of the Senate last night in effect
strengthen the hold of the big banks and AMP on the industry by making it more difficult for competitors to attract planners away from the big 5 or for planners to go it alone.”
But today the government and opposition have banded together to allow grandfathering with Finance Minister Mathias Cormann saying the intent was to, “address unintended consequences, and facilitate competition in the financial advice industry, by enabling advisers to move licensees with their clients whilst continuing to receive grandfathered remuneration.”
It’s a welcome move and a win for clients and the small business men and women of the planning industry.
It also shows the naivety of good intentions in the Senate without understanding the full consequences of political actions.