Tue 12 November 2019 - Paramount Financial Solutions
Real McCoy Worth Dough
It would be foolhardy to try to
justify the retention of a
regime that resulted in owners
of financial products being
charged fees for services that
were not, ultimately, provided.
That said, introducing a law
that outlaws contractual terms
that were allowable at the time
the contract was entered into
would be seen by any reasonable
person as grossly unfair.
The recent move by the Federal
Government to turn off previously
to advisers from financial products
bears the hallmarks of
American laws that started
almost a century ago to prohibit
alcohol. The rationale was simple;
if some people are abusing a
right, remove that right.
The reason Prohibition was
short-lived is pretty simple, too.
It didn’t take long for the
government to work out that it
was unfair to impose restrictions
on the entire community
simply because a few people
were incapable of enjoying the
You might be of the view that
this most recent case of “Ready,
fire, aim!” by the Federal
Government has little impact
other than stopping advisers
being paid for doing nothing.
However, the unintended negative
consequences of this change
are many and varied.
Some of the products paying
these “commissions” have no
mechanism under which the
commission can be refunded
into the product.
But it is questionable whether
the new law will require that the
product provider issues cheques
to the customers in question.
Many financial advisers
acquired “books” of clients on
valuations that included this
In many instances, the valuation
secured the borrowing that
funded the purchase, while the
cashflow they generated helped
service the debt.
Is it fair these advisers should
lose the asset and the revenue
stream, but be left with the debt?
Many of the products which
are subject to these arrangements
are also the beneficiaries
of “grandfathered” treatment
by Centrelink & Department of
Veterans’ Affairs. This usually
precludes their replacement by
an alternative product that is not
paying the now banned grandfathered
An adviser may be unable to
put the client on a fee-for-service
arrangement without triggering
adverse impact on the client’s
social security entitlements.
Rightly or wrongly, many of
the owners of these financial
products would perceive they
could not afford financial advice
unless the adviser was being
remunerated via the product.
Adviser numbers are dwindling
after the royal commission and
the impending impact of the new
Financial Adviser Standards
and Ethics Authority requirements.
It is questionable whether the
Government is prepared to compound
this problem with this latest
measure and the departure
of even more advisers. The cost
of financial advice is moving beyond
the reach of those who
most need it. These latest changes
exacerbate that problem.
The royal commission uncovered
unsavoury practices that,
rightly, needed to be brought to a
halt. However, discontinuing a
perfectly legitimate contractual
arrangement simply because a
tiny minority took advantage is
akin to cracking the proverbial
nut with a sledgehammer.
It is disturbing to think about
the drunkard spending the
family grocery money on booze,
but I do like to be able to enjoy
a glass of wine with friends
without breaking the law.
The responsible majority
should not be penalised because
of the actions of a minority, be it
in their beverage choice or way
of paying a financial adviser.
Real McCoy worth dough
Wayne Leggett is a director of
Paramount Financial Solutions