While the government rails at the industry superannuation sector, Labor is contemplating a second-best option when it comes to the Commonwealth Bank financial planning scandal.
The government is now adding to the mess that is its Future of Financial Advice repeal, with Mathias Cormann, the Finance Minister and, after all these months, still acting Assistant Treasurer, wildly lashing out at industry super funds.
In yesterday’s Financial Review, Cormann, AKA the Pseudodinos, mysteriously raised the prospect of targeting industry funds as a kind of revenge if the Senate disallowed his FOFA repeal. Industry super funds — which despite being run by representatives of “venal union officials” as a “gravy train” (Tony Abbott’s words) and employer groups, significantly outperform funds run by the big banks and AMP — are a particular target of the Coalition. Cormann told Fin journalist Nassim Khadem:
“What I will do, if the Senate is indeed of the view for example that opt-in and retrospective fee disclosure requirements should stay in place for small business financial advisers, is consider whether in the interest of competitive neutrality, those requirements should apply equally across the financial services sector, including to all advice provided through industry funds.”
Industry funds had been exempted from fee disclosure requirements by Labor in a “special deal”, he claimed.
The problem is, no one knew what Cormann was talking about, because he was flat wrong — the same requirements apply to financial advice regardless of whether it is given by an industry fund planner or a planner working for Commonwealth Financial Planning. There is no “special deal” for industry funds.
Cormann — who to his credit is about the only Coalition minister who genuinely engages with people on social media, despite the personal abuse he receives — and I had something of a running battle on Twitter throughout the day as I tried to get him to explain what he actually meant, especially after he claimed he’d been misreported. Eventually — after Industry Super Australia, the industry peak body, joined in — it became clear Cormann was talking about what’s known as “intrafund advice”, which is standard advice given by funds to clients about matters relating to their existing accounts, and which is not regulated the same way as personal financial advice. A good example is the advice thousands of people would have been given during the financial crisis, when the sharemarket was in freefall and they rang their funds asking if they could switch into cash.
Once someone asks about matters outside their existing accounts — for example, I have some money somewhere else, what should I do with it? — it stops being intrafund advice and becomes financial advice, regulated the same across the industry.
It emerged that Cormann indeed was talking about intrafund advice — except he rejected that term. “[I]ntra-fund advice is fancy Labor terminology for general and some personal advice which they exempted from FOFA requirements,” he said.
As Khadem and Laura Tingle explained in a follow-up article today, pretty much everyone gives intrafund advice, whether they’re industry or retail — and there’s no difference in its regulation. So Cormann’s mysterious warning about requirements “applying equally” would mean all funds would, if you rang up for some information about your account, have to treat their response as personal financial advice — dramatically increasing costs despite the government insisting it wants to slash costs. And it would increase costs every bit as much for retail super as for industry super.
In short, Cormann either doesn’t understand how advice is regulated — unlikely — or he just wanted to imply industry super gets a special deal when it gets the same deal as retail super.
While this was happening, Labor was suggesting that a new Senate inquiry be held into financial planning and the Commonwealth Bank by the Senate Economics Committee, given the government’s reluctance to conduct a judicial inquiry into the scandal uncovered by Fairfax media and explored in the previous committee inquiry into ASIC.
It’s a flawed option, for a couple of reasons. One is, even with powers to subpoena witnesses, a Senate committee lacks the coercive powers that are needed to investigate allegations (and they remain just that) about the CBA doctoring the files it reconstructed — one of the key reasons why the ASIC inquiry recommended a judicial inquiry.
The second reason is that it’s an all-new committee. Gone are Mark Bishop and John Williams, who chaired and instigated the ASIC inquiry, respectively (Bishop has left the Senate entirely). The new chair of the references committee (the government chairs committees when they inquire into legislation, opposition chairs them when other matters are referred) is Labor’s Sam Dastyari, the deputy chair in place of David Bushby is South Australian Liberal Sean Edwards and Williams has been replaced with new arrival Matt Canavan, a former Barnaby Joyce staffer. While Nick Xenophon remains on the committee and Labor veteran Kim Carr has joined, it is now a very inexperienced committee leadership, even if Dastyari was involved in the ASIC inquiry. Still, it may be the only way, in the face of bloody-minded recalcitrance from the Coalition, to further pursue the Commonwealth Bank matter.
And it may have a way yet to go. The publicity generated by the ASIC inquiry report, the Commonwealth Bank’s inept response and the bank’s national campaign to get its compensation process back on track is only just now starting to reach a lot of people. There are likely to be more stories of lost savings and ruined retirements caused by the Commonwealth’s financial planners emerging in coming months. The pain may not yet be over for Cormann, even if the Senate kills his regulations.