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Feb 20, 2014

Sinodinos' FOFA repeal looking shaky as critics multiply

What looked in January like a sneaky win for the big banks on financial advice has turned messy for Arthur Sinodinos as more critics of his gutting of the Future of Financial Advice reforms emerge.

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While Assistant Treasurer Arthur Sinodinos is hanging tough, the fate of his effort to gut the Future of Financial Advice consumer protections looks increasingly precarious as opposition mounts, including from some unexpected quarters.

Sinodinos’ strategy was to try to do as much as possible by regulation rather than legislation and sneak a package out over summer in the hope that it would garner as little attention as possible. Until recently, the strategy seemed to be working, with only the financial press and independent outlets like Crikey focusing on what amounted to a bank cartel heist of client retirement savings. But a fortnight ago, journalists at The Australian Financial Review began pointing out the huge problems with Sinodinos’ plan, in particular the de facto restoration of commissions via what are called volume rebates, whereby planners are given a “rebate” to reflect the economies of scale that come from directing large numbers of clients into particular products.

Devastatingly, financial planners who aren’t aligned with the big banks and AMP have also criticised the package — reflecting how even significant sections of the financial planning industry accept that it’s time to move on from commissions, no matter what name they’re given, and accept their primary responsibility is to their clients, not to their product providers or their own bank balances.

With even the likes of the AFR’s Jennifer Hewett attacking the government over the package as returning to the bad old days that led to Storm and Westpoint, Sinodinos has been looking more and more under siege. Today the Fin offered a six-of-one-half-a-dozen-of-the-other editorial that finally came down on the side of suggesting “more is needed to make the Coalition’s objectives and safeguards clearer”. It’s not exactly a thundering editorial, but when even a business mouthpiece like the AFR expresses reservations about a Coalition policy, there’s trouble ahead.

The industry super sector also delivered a damaging hit to the repeal proposal on Monday, with the release of legal advice that Sinodinos’ regulation-based strategy could fail — a court may well find that there is no legal basis in the current legislation for regulations that in effect repeal much of the legislation, rendering Sinodinos’ regulatory changes invalid not just from the moment they’re disallowed by the Senate — a likely outcome — but retrospectively invalid.

Sinodinos tried to dismiss the legal advice as doing no more than stating the obvious. The normally excellent Tony Boyd at the AFR joined in on Tuesday, producing a long Chanticleer piece lauding the repeal and mocking the legal advice. But in this instance Boyd’s been sold a pup. Either deliberately or in his enthusiasm for knocking off FOFA, Boyd missed the real point of the advice, which was that it is Sinodinoss strategy of trying to sneak the repeal through with no scrutiny that is placing it in legal jeopardy. The basis of the advice is that Sinodinos is trying to use the regulation-making powers provided by the FOFA legislation not for the purposes identified in the act, or for more amendments to its operation, but to gut the legislation almost entirely.

If Sinodinos were trying to deliver this reform properly, he’d do what then-financial services minister Bill Shorten had to do when he got the FOFA package through Parliament in 2012 — negotiate, consult and compromise with other parties. Instead, Sinodinos has taken the lazy, sneaky route.

Yesterday, the Australian Securities and Investments Commission, appearing before the Senate committee inquiry into how hopeless it is, gave a lukewarm endorsement of Sinodinos’ repeal, having been a strong supporter of the FOFA reforms. In an effort to avoid criticising government policy, chairman Greg Medcraft preferred to dwell at length on how financial planning was ASIC’s most difficult regulatory problem and cultural change was needed in the sector. “We need a super sector we can trust and I would like to be able to see an adviser not have concerns about [it]. What we have seen in the last two years is the sector is not tackling that,” Medcraft said.

Sinodinos’ efforts to gut FOFA continue that refusal to accept that consumers should be able to trust advisers — in particular, not to charge fees they don’t know about and not to push them into underperforming big bank products for which the planner is getting rewarded.

So the fate of the repeal is now inextricably linked to Sinodinos himself. If it hits the fence, it will have been a decidedly inglorious start to his frontbench career, after the feted former prime ministerial chief of staff was overlooked for the Finance ministry in favour of Mathias “he rose without trace” Cormann after the election. Sinodinos can thus be expected to fight to the bitter end for the repeal package. But there may come a point when more senior and wiser heads within the Prime Minister’s Office tap him on the shoulder and point out that if he wants to repeal FOFA, he should actually try repealing FOFA.

Bernard Keane — Politics Editor

Bernard Keane

Politics Editor

Bernard Keane is Crikey’s political editor. Before that he was Crikey’s Canberra press gallery correspondent, covering politics, national security and economics.

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26 thoughts on “Sinodinos’ FOFA repeal looking shaky as critics multiply

  1. wbddrss

    good/great response Jimmy.

    I believe your last paragraph is worth deliberating on. However rubbishing AS does not discredit the great years Australia had under JH.

    I consider we may enter now a possible two quarters of -ve economic growth.

    We sailed through GFC not with help of KR, but through shere momentum. Many other countries slowed down, Australia just lagged, just like Germany, as we both were receiving big orders from China’s stimulus from internal credit creation & accumulated foreign exchange reserves.

    Australia did not even look like slowing down before or during GFC. KR stimulus was not necessary & possibly distorting savings & investment. Building schools does not train teachers better.

    2. I believe demand is driven by productivity & something similar to terms of trade. This is my perception.

    3. Good stuff if you like motherhood statements. If A=B & B=C therefore A=C. Accordingly A – B = C; Then A + B = C. Does not explain a thing.

    4. Costellos budget surpluses came from increasing taxation revenue, this came from greater productivity. Terms of trade. Long term trends in productivity from the Internet, E Commerce & Dis intermediation.

    10. If you think NDIS is such a great investment, recommend to the LABOR freak show that all investment in export orientated industries stop and we channel a fortune into NDIS. Then run deficits & borrow against our children’s future lifestyle … then watch Australia grow. Good one mate. Real smart.

    9. I believe in GOLD. Paper monies can easily disappear. Ask the timorese, when Indonesians took over & all the middle class who invested in cash lost out. That’s why people buy property. Governments just trash currencies LT.

    The economy under JH caught the tailwinds from PK & BH economic reforms.

    The run of good years just started after JH won his first election. It is an empirical association that internet took off with point of inflection just about that time. We already had educated workforce who became more savy at ecommerce. The productivity advantages here accrued more to Australia as consumers compared prices & savings flowed through supply chain back to Raw Material exporters. Australia was in the right place on fringe of Asia to get these productivity savings through the internet & terms of trade.

    JH set up the right social context to allow Australia to maximise the advantage from its strategic position.

    Australia cannot compete with Asia in manufacturing; as we have diminishing manufacturing, there was less of a phenomena of @comparing prices@ on the internet, cannibalising each other through lower profit margins.

    Getting closer to 2006, as effect of internet started to diminish as a +ve effect, the productivity advantages turned to retailers being hurt. This occurred just before GFC.

    My type of analysis makes NBN the only really good vintage heritage Labor has left us.

    All the rest were socially disruptive, social changes, which did not enhance Australia in its strategic position with a highly competitive Asian manufacturing sector.

    You can call JH lucky or you can call KR & JG just a bunch of losers.

    Focusing on endless social equity issues does not build a better Australia. For example…..

    Brandless cigarette packets a -ve for cost of compliance. It did not help keeping chop chop contained.

    Focusing on same sex relations does not help Families achieve 2.3 children. Yes demographics is really important for sustaining a future tax base to pay back all that debt.

    Picking on poker machine players did not help clubs fulfill their role in combating the atomisation of Australian Society.

    The list is endless, till voter after voter changed their minds & threw them out.
    There wasn’t a single person in Australia not affected by their social agenda which are all too risky for those most affected in bankrupt states like SA, NT & TAS.

    You may successfully draw inspiration from Macro economic ideas. I prefer to linking taxation as an intelligence gathering tool, as lead indicator of which part of economy is successful. Making Australia, as a system:

    & emergent.

    Destroying the voter base of a party to achieve fluff sends Australia backwards, & I do not call it good leadership. Change has to meet criteria above.

    Present regime may not be popular to bleeding hearts who are most of crikey’s readers. I am not too entranced by TA social catholic values. But if he can build a better society I am happy to live comfortably with his reign until an opposition brings back more conservative type agenda. If not then we are stuck with him.

    I am really sorry if I offend anyone. I apologise as usual if my perceptions are out of whack & mixed up.

    Rubbishing AS does not discredit the great years Australia had under JH.
    This may be my last post, need a drink.


  2. Jimmyhaz


    2) Demand is entirely driven by Australian government expenditures, a large deficit will correspond to a high level of demand in the private sector, just as a budget surplus will lead to a low level of demand (and low employment and wage growth).

    3) All money taken in by the government through taxation is destroyed, revenue does not exist for our fed. They do budget for taxation, obviously, but this is for it’s effect on the private sector, not the public.

    4) It isn’t possible for taxation revenue to match government expenditure in Australia, ever. Costello’s budget surpluses were delivered through the mass selling of Australian government asset’s, a short term method of ‘debt control’ if ever there was one.

    6) Labor was looking for these savings as the public doesn’t understand economics. The NDIS is entirely fundable without any changes to our taxation or (other) government spending.

    7) Government ‘revenues’ are going to drop if the money that the government was placing into the economy through its spending is no longer there. I have no idea whether or not there is a 1:1 correlation between the fall in government revenues, and the amount that we have curtailed government spending, but I imagine it would be close.

    9) Government deficit is meaningless, but I think it’s even more meaningless if you give it as a gross number rather than as a per capita amount.

    10) NDIS was absolutely an investment, just not one expected to give a positive ROI, at least in the financial sense of the term.

    I don’t really understand where you are coming from when you give credit to Howard for good economic governance. There is far more to macro-economics than the budget bottom line (Budget surplus/deficit wouldn’t crack the top 100 most important things to a countries economy). Howard and Costello consistently undershot the OECD average for economic growth during their entire term, whereas Gillard and Swann kept us as the only nation in the entire OECD not to enter a recession.

    I think I know which of them I would prefer running my country.

  3. wbddrss

    But I could sure do with some of what you’re smoking.

    Dogs Breakfast

    You have made a few good points here & I shall address them as best I can from the impression I got working in an area of Public Service which dealt with these same issues.

    1) All expenditure under constitution of Australia must be in accordance with the LAW. Hence appropriations.

    2) Most expenditure is demand driven, so difficult to budget for. For example BASI & planes falling out of sky. Cyclical economy & unemployment benefits. These are out of control of Commonwealth but under LAW appropriations are made to satisfy people needing Govt Assistance.

    3) Revenue, ie taxation must also be under the law & budgeted for. Every line of Taxation Law is costed for its effect of revenue being received. The skill required here is enormous & hence estimation by RAB, called REVENUE ANALYSIS BRANCH, in Tax Office ; is very precise.

    4) To the best of my knowledge over the early years of Howard Govt , particularly up to 2004, Taxation revenue often exceeded budgeted figures.

    5) My role was to look at changes in society, called ENVIRONMENTAL SCANNING, and to see if emerging patterns & trends would influence the structure of economy, to influence what could be estimated as the budgeted revenue within the LAW as best interpreted by Judges & Magistrates.

    6) Just before last election Labour was looking for an extra 30 Billion from savings so that NDIS could get up & running.

    7) Just before last election it was reported in papers actual revenue coming in to tax office was 30 Billion short. This is calculated day by day & month by month by TAx Office.

    8) It could be argued, why would you look for monies if context in economy could not sustain the revenues being produced.

    9) This is unheard of to me. I am amazed a Commonwealth Government would be short 60 Billion dollars nearly all of our old age pensions, just before an election. FROM MY UNDERSTANDING IT is RIDICULOUS.

    10) NDIS was not an investment. There was no expectation of a return on investment. To promise to the weakest in community, trials of say one billion over a few years & have no hope of fulfilling commitments on NDIS is highly immoral.

    11) I may be wrong in my assertions & general knowledge.
    12) You may have superior wisdom than me.
    13) If you are right both , both sides squandered all those fruits of good years leading into mining boom which bottomed in 2001. 2004 on wards productivity started disappearing from the economy.

    We all pay the price of bad decisions in the past. I stand by my assertions that from recollection in 1998 to 2004 I was witnessing in 20/20 hindsight some of the best economic years in Australia’s history. In those years taxation revenue exceeded expectations , year after year & nobody knows why.


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