The final report of the royal commission recommended repealing the grandfathering provisions for conflicted remuneration and introducing an annual renewal requirement for the deduction of any advice fees.

Following the release of the final report, Treasurer Josh Frydenberg announced that the government would repeal grandfathered grandfathering provisions for conflicted remuneration on 1 January 2021. Labor plans to end grandfathering of conflicted remuneration a year earlier, from 1 January 2020.

Mr Thistlethwaite said there has been sales of advice businesses where the people purchasing the business have bought it on the basis that grandfathered commissions would continue.

“I recently had a financial planner come up to me at an event and say: ‘You guys have got it wrong with grandfathered commissions. In a lot of financial planning businesses, people had borrowed money to buy the business on the basis that the grandfathered commissions were part of the profits of the business, the structure of the business, and the reason why they bought into that particular business’,” he said.

Mr Thistlethwaite said that he had “little sympathy” for financial advisers in this situation.

“You’ve been on notice about this, and, if you’d done your due diligence, you should have known about this,” he said.

When FOFA was first introduced, he said, there was discussion in the lead-up to FOFA being legislated about grandfathered commissions.

“At the time, a parliamentary committee and the Parliament agreed to provide a carve-out for grandfathered commissions. But, in the report by the Parliamentary Joint Committee on Corporations and Financial Services that looked at FOFA, there was, very much, an indication that these things wouldn’t last forever and that a carve-out was being provided at that point in time, but the industry was on notice to look at phasing those sorts of things out,” he said.

SMSF Adviser previously reported that with some advice firms borrowing significant sums to buy adviser trail books in the past, the ban on grandfathered commissions could leave them with “catastrophic” debt levels secured by a worthless asset.

SMSF Alliance principal David Busoli previously said that trail books were often marketed to advisers as a type of rent roll that would provide them with an income stream whether they worked for it or not.

“The underlying theory was that the adviser would talk to the clients and service their business potential. The reality was that these trail books often included so many clients of little economic value to the adviser that this did not happen. So, they were often regarded as a book of passive income with a valuation based on a multiple of income,” he said.

“For someone with a $2 million loan secured by a trail book which has been funding the payments, there is a real problem. The adviser will still be liable for the debt with, probably, no real prospect of servicing it, so who will be left ‘holding the can?’”