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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.

Bernard Keane — Politics Editor

Bernard Keane

Politics Editor

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.

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26 comments

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

  1. Jimmy

    Anything that removes the requirement for the planner to act in the best interest of his clients and the conflict of interest provisions is clearly flawed.

  2. rossmcg

    Fancy Sinodinis trying something sneaky. He was JW Howard’s right hand man when sneakiness was a Tory trademark. And lazy as well, too lazy to check his files before filling in his members interests form for the Senate where he forgot to mention seven company directorships. Seven. And we might see how forgetful he is if he has to front up at ICAC and talk about he didn’t really know the Obeids. Interesting days ahead for Uncle Arthur.

  3. zut alors

    The motivation for these regulatory changes is highly suspicious if not downright blatant.

    Neither Sinodinos nor Cormann has provided a logical argument for their cause. To undermine the Act is of no benefit to the wider community…so, why do it?

  4. klewso

    Bugger poor Arfa. How’s he going to face those lobbyists if he can’t deliver?

  5. klewso

    It’s the free ride he gets from even the balanced media that gets me – as if they don’t remember what he was advising Howard to do?
    As if selective amnesia is an asset in their job?
    “Mean & Tricky – Attorney’s at Lore”?

  6. Brian Williams

    Having spent many years in my previous working life at the pointy end of the finance game, the idea that Joe Public does not need the original FOFA reforms is fanciful.

    Even seasoned professionals in other fields are often only obliquely aware of the commissions rort that has been taking place in this sector for years. Some people believe that tax is legalised theft. The commissions structure that Sinodinos wants to keep in place for his mates is far worse.

  7. Thomas McLoughlin

    10 trillion dollars of value destroyed in the age of Greenspan’s light touch regulation via the GFC according to Stiglitz.

    Hello reality, meet free market ideology.

  8. bjb

    rossmcg – said exactly what I would have !

    “Instead, Sinodinos has taken the lazy, sneaky route” – I wouldn’t worry too much about Sinodinos’ future prospects Bernard – he’s the very model of a Liberal politician.

  9. Jimmyhaz

    @Zut

    I think this government dropped the pretense of acting in the communities best interests the moment it was elected.

    After all, the community didn’t pay for their election campaign.

  10. Liamj

    “If Sinodinos were trying to deliver this reform properly, he’d .. negotiate, consult and compromise”

    Hmm, can anyone name ANY policy area where the LNP is doing this? Tony & Barnabys drought photo-op doesn’t count, neither do the predetermined reviews on wind power & renewables target.
    And theres definately nothing in the IPAs marching orders on ‘negotiate, consult and compromise’.. so all dissenters must be godless communists, even the ones at the Fin Review. Shutup or its Manus for you all!