Has the Government dropped the legacy product ball?
Any Royal Commission recommendations for the removal of grandfathering must be accompanied by an obligation on the Federal Government to address the tax setting around legacy products.
The key financial services representative bodies have been lobbying successive federal governments for more than two decades for the question of legacy products to be addressed but, to date, there has been no serious response from the Commonwealth.
The Financial Services Council (FSC) last year claimed that Governments had left the question of legacy products unaddressed for more than 15 years.
Both the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA) are expected to point out the need for the Government to move on the legacy product issue, while the FSC has been calling for the Government to move legacy products in the context of the implementation of the Life Insurance Framework.
FSC chief executive, Sally Loane last year claimed that current financial services laws rendered the rationalisation of financial products as either too difficult or too expensive and called for the implementation of a product rationalisation timetable.
For its part, the FPA has pointed to legacy products arising from a number of reasons including legislative, regulatory and tax developments resulting in products becoming outdated or unsustainable/unviable.
At the same time, Association of Financial Advisers general manager, Policy and Professionalism, Phil Anderson has used an upcoming column in Money Management to point out that many clients are currently caught in poor, high-cost legacy products.
He said that eliminating grandfathering would also eliminate the ability of planners to help people caught in these products.
Anderson said there needed to be a focus on the core policy objective of assisting clients caught in poor, high-cost legacy products.
“If we accept this as the objective, then we should be arguing for regulatory changes that help these clients, including banning exit fees, capital gains tax relief and Centrelink exemptions, rather than placing all the consequences and obligations on the financial adviser community.”
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