Glimmer of hope for volume rebates

Some volume rebates may survive the Federal Government’s Future of Financial Advice reforms.

That is the bottom line delivered by Treasury officials to the Senate Economics Committee and, in part, to industry briefings held in Brisbane, Sydney and Melbourne last week.

The Government has also signalled that it is likely to be the middle of the year before the financial planning industry sees the first draft of the legislation flowing from the FOFA changes, with consultation with industry stakeholders continuing in the meantime.

The Treasury’s Markets Group executive director, Jim Murphy, acknowledged to the Senate Economics Committee that a range of arrangements applied within the financial planning industry and that it was possible that not all volume rebate arrangements would result in the provision of conflicted advice.

“We are trying to tackle the conflicts of interest that are in this so you get better quality advice,” he said.

“If, through the discussions and consultations Mr [Geoff] Miller and his team are undertaking, we can quarantine out certain volume transactions that do not lead you to conflicts, there may be no need to act in that area.”

Murphy said the task confronting the Treasury officials had been reasonably complicated and complex because a lot of the larger companies operating in the financial planning industry had different arrangements and structures.

“We are trying to ensure that the new regulation – we understand what the Government is trying to address is conflict of interest – ensures that legitimate business practices can continue,” he said.

Later, during Treasury briefings held in Sydney, the officials said that the Assistant Treasurer and Minister for Financial Services, Bill Shorten, was considering whether there could be exceptions to the rule.

However, the same official indicated dealer groups that simply sought to white-label a platform were unlikely to avoid any Government ban on volume rebates.

Murphy’s statement confirms the analysis of a number of senior financial planning industry representatives, who earlier this year told Money Management that it was possible some of the volume rebate arrangements that had traditionally underpinned dealer groups could be left intact or modified.

They said this would be particularly the case where it could be proved no linkages existed between the commercial transaction and the actual provision of advice.

This has contrasted with the lobbying efforts of the Industry Super Network, which has been calling for a virtual blanket ban on volume rebates.

In a series of briefings last week held around Australia, Treasury officials made clear that some form of opt-in arrangement would be imposed, but that the situation regarding volume rebates remained fluid along with the handling of commissions attaching to insurance products.

The officials said the Government recognised that the situation with respect to investment and insurance was very different.

Commenting on the Treasury briefing, CommInsure’s general manager of retail advice Tim Browne said he was encouraged that Treasury was exploring the differences between investment and insurance product advice.