The banking cartel is the only remaining supporter of the government’s repeal of FOFA — and its defence is getting increasingly difficult.
When the government returns to its efforts to repeal the Future of Financial Advice reform package, it will do so with only the support of the Financial Services Council and the Australian Bankers Association, after further manoeuvering last week by key players.
Last Thursday, the Financial Planning Association re-affirmed its opposition to the restoration of commissions in a wide-ranging White Paper on the future of the financial planning profession. It was the FPA’s opposition to commissions for financial advisers that helped stop the government’s original push to gut FOFA in March, after Assistant Treasurer Arthur Sinodinos was forced to stand aside.
Despite Finance Minister Mathias Cormann — filling in for Sinodinos — beginning a process of consultation with industry in order to explain that the government’s package was exactly what it promised before the election, the FPA has so far failed to shift. The white paper states bluntly:
“In the current law, conflicted remuneration in connection to both personal and general financial product advice on superannuation and investments is banned. However, the Government has introduced the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014, which removes the ban on conflicted remuneration on general advice. This measure potentially reintroduces commissions into the advice space, especially in connection to superannuation and investment products. Commissions must not be permitted to be paid under general advice. The return of commissions on investments (including upfront or trail commissions), or in superannuation, should be opposed.”
“It is undeniable,” the paper continues, “that conflicted remuneration has eroded public confidence in our financial system.”
The strong line of the FPA represents an industry evolving away from the traditional commission-based model that a few dead-ender financial planners cling to. It’s one increasingly at odds with the retail super funds — run by the big banks and AMP — that control about a third of Australians’ super wealth and which have long relied on commissions of one kind or another to encourage planners to direct clients into their products.
With key stakeholders like seniors groups up in arms about the repeal, that leaves only the retail funds — represented by the Financial Services Council — and the banking cartel as the chief supporter of repeal.
“It is undeniable that conflicted remuneration has eroded public confidence in our financial system.”
According to the Australian Bankers’ Association, however, there’s no repeal — merely “technical amendments which will clarify and simplify the operation of the law”. In an intriguing media release on Friday boldly titled “ABA continues to support FOFA”, the ABA lashed out at Industry Super Australia after it appeared before a Senate committee hearing into the repeal bills. “The ABA is not seeking changes to enable banks to charge or re-introduce commissions,” the banking cartel lobby group insisted.
Except, it depends on what you call commissions:
” … FOFA was never intended to include all employees across the financial services industry, even staff in non-customer facing roles. It was never intended to include bank tellers and bank specialists who provide information to customers wanting to open a bank account or get advice on other basic banking products … bank staff do not get paid commissions. Bank staff receive a salary and may have access to a performance bonus paid subject to a balanced scorecard.”
So, you’re probably getting the impression from the ABA that there’s been some disastrous regulatory overreach by the previous government and that your average bank teller now needs a financial planning licence just to help your elderly mum open a bank account. Except, it’s not true — low-level staff are already exempted under FOFA in relation to basic financial transactions. Indeed, the ABA almost acknowledges this when it explains that FOFA requires “customers having to speak to a different banker about a bank account or a home loan or general insurance product or consumer credit insurance”. So it’s not just about “opening a bank account or get advice on other basic banking products”.
“We know this will frustrate customers and bankers if they can’t complete their retail banking transactions with one person,” the ABA says, perspicaciously. Possibly not as frustrating as getting advice from a bank teller or bank call centre whose performance bonus partly depends on steering you into a product that’s great for their employer and less than great for you.
Industry Super Australia commissioned Rice Warner to look at the cost of repealing FOFA to consumers, given the government had only costed the benefits to industry of its changes. The review, released last week, found consumers would end up transferring about between $329 to $549 million a year to retail super funds and financial planners under the changes, far in excess of the savings estimated by Treasury. Like all such “independent reports”, the study needs close examination, but the main problem appears to be underestimation of costs to consumers rather than over-estimation, given the report authors elect not to try to quantify the cost to consumers of poor advice delivered by conflicted planners.
Perhaps the FPA will swing in behind the ABA interpretation that the repeal of FOFA is actually just about allowing bank tellers to enjoy their annual performance bonuses. But until it does, it means there’s no credible support for the government attack on FOFA.