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.
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.