The government has flagged it will push on with attempts to gut financial advice consumer protections even as financial advice regulation has gone into meltdown.
The government has flagged it will give no ground in its attempt to repeal the Future of Financial Advice consumer protection package, with a remarkable Senate committee report that recognises industry concerns but refuses to recommend any measures to address them.
The government-controlled Senate Economics committee last night released its report into the bill gutting FOFA and recommended it be passed with trivial changes not to the wording of the bill itself, but, remarkably, the Explanatory Memorandum, to address the issues it acknowledged had been raised by industry and key stakeholders. The majority report was opposed by both Labor senators and the Greens.
The nearest the majority report comes to proposing fixes for problems acknowledged even by groups supporting the repeal is on the reinstatement of conflicted remuneration, which the Financial Planning Association is strongly opposed to and on which even the Financial Services Council has expressed concern.
“Clearly, a number of submitters lodged strong objections to the amendments broadening the exemptions from conflicted remuneration. They came not only from consumer protection groups but from industry groups including CPA Australia and the Institute of Chartered Accountants Australia, FPA, the Australian Institute of Superannuation, AFA, FPSA, and SPAA… the FSC, which supported the amendments, recognised the need ‘for more work’ to be done on the drafting, which ‘requires extra ring fencing’ to ensure that the proposed legislation does not allow the reintroduction of commissions’. Indeed, Treasury officials indicated that commissions ‘was one of the issues that Treasury was working through’.”
Despite that, government senators declined to recommend specific action to fix the problem, instead recommending “that the Explanatory Memorandum make clear that it is not the government’s intention to reintroduce commissions” — a meaningless gesture — that the government consider redrafting the conflicted remuneration provisions “to ensure that there is greater clarity around their implementation” and consider making the distinction between general advice and personal advice “sharper and more applicable in a practical sense when it comes to allowing exemptions from conflicted remuneration”.
“The government is bent on giving more power to financial planners and the big banks like CBA … Madness.”
However the committee dismissed out of hand concerns from groups such as seniors’ groups, the Australian Institute of Superannuation Trustees and the Governance Institute of Australia that the removal of what is known as the “catch-all provision” would reduce protections for consumers. Currently, advisers are required by law to act in the best interests of the client as assessed by both a checklist of six measures and a seventh provision that requires them to take “any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances”.
The removal of the catch-all provision would, according to industry experts, re-establish the pre-FOFA situation, reducing the best interests requirement to a checklist of items rather than a general requirement, but the committee insisted “there would be no dilution of the best interests duty, but a greater deal of certainty for both client and adviser.”
And while accepting that there were genuine concerns around allowing scaled advice (under which, in the name of reducing the cost of financial advice, planners can get clients to agree to limit advice to specific areas regardless of whether it is in their overall financial interests), the committee declined to recommend any action.
“The committee is particularly cognisant of the concerns raised by some submitters about the low levels of financial literacy and the potential for consumers not to understand fully the consequences of seeking limited advice. It notes the results of ASIC’s survey which showed that advisers, although obliged to adhere to the best interests duty, could still fall short in the advice they provided. Even some of those who supported the bill underlined the need for the best interests duty to apply in full for scaled advice.”
Nonetheless, the committee again recommended only that the Explanatory Memorandum be changed to spell out the (watered down) best interest requirement. Government senators also waved off any suggestion that the gutting of one of the central FOFA reforms — the requirement that planners get clients to agree at least every two years to any ongoing fee arrangements — would have adverse outcomes for consumers. Bizarrely, one reason offered by the committee is that they believe planners would be eager to notify their clients that they are continuing to charge them even for advice clients don’t ask for or want. “While there is no doubt that the repeal of the opt-in requirement would remove an opportunity for client engagement, there are numerous other measures whereby advisers keep in contact with their clients — for example through annual fee disclosure statements.”
The nothing-to-see-here approach of the government continues to stand in remarkable contrast to the ongoing debacle of the Australian Securities and Investments Commission’s “regulation” of the Commonwealth Bank’s financial planners, as exposed by the Senate’s committee of inquiry into the performance of ASIC. That’s the committee that, under Labor’s Mark Bishop and the Nationals’ John Williams, has revealed massive problems with ASIC’s unwillingness to properly regulate the CBA’s cowboy financial planners who lost millions for their clients, or the compensation process the bank established. Just today, Fairfax’s Adele Ferguson showed how the CBA and ASIC are continuing to contradict each other over the issue.
ASIC has also told that committee that, far from strengthening its regulatory work, it will have to curb compliance activities due to budget cuts, and that it couldn’t guarantee clients would always get sound advice from the CBA’s planners.
That means the government is bent on giving more power to financial planners and the big banks like CBA at the exact point ASIC’s already-inadequate regulation of the sector will be curbed. Madness.