Pressure on AMP, ANZ to quit trailing commissions

Australia’s biggest financial institutions are now under pressure to quit trailing commissions after Macquarie and BT pulled out.

AMP, along with other leading financial institutions, is under pressure to quit trailing commissions. Picture: Hollie Adams

Australia’s biggest financial institutions — especially ANZ and AMP — are now under enormous pressure to quit the nasty business of trailing commissions after Macquarie Bank joined Westpac’s BT Financial Group in voluntarily quitting the business.

With the Australian Securities and Investments Commission openly expressing concern over the lingering existence of trailing commissions four years after they were meant to be banned, it looks like the time is up for a style of financial advice most people thought was already dead and buried.

Bernie Ripoll, now a financial adviser with SAS Group Consulting — and the architect of the original Future of Financial Advice reforms in 2014 — said yesterday: “This is very significant, it’s a changing of the guard … a changing of the model at last for financial advice in

this country.”

It is widely expected the Royal Commission into banking may recommend the abolition of trailing commissions when it reports later this year.

But more than half of the people currently affected by trailing commission charges remain caught in the net as the combined customers of BT and Macquarie only make up about 160,000 customers from an estimated half a million in the wider market.

Rival players in the advice business such as ANZ and AMP have yet to show their hand in this unexpected season of voluntarily terminating a profitable line of business. Trailing commission revenue remains a key part of establishing the sale value of financial advice operations.

Trailing commissions are often paid by customers for years after advice is given — the arrangements were ‘grandfathered’ as part of the FOFA legislation. Grandfathering allows banks and insurers to continue a line of business working on the assumption it is being phased out.

In the case of trailing commissions the problem has been they have kept going: Ripoll, has previously told The Australian he believed the banks had exploited the legal extension of trailing commissions: “It’s disappointing that it’s still happening What we’ve found through the Royal Commission is that the trust that we gave, for the sector to self-regulate, was abused by many.”

The poor handling of trailing commissions by the banks under the ‘grandfathered’ arrangements may also lead to pressure down the track on the very concept of ‘grandfathering’ which has become a strongly established principle in financial reforms.