Jul 9, 2014

Cormann lashes out but the FOFA pain may just be beginning

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.

Bernard Keane — Politics editor

Bernard Keane

Politics editor

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. Alas for Cormann, that's not true either. The Association of Superannuation Funds -- which covers the whole super sector and isn't aligned with industry, retail or SMSF -- described intrafund advice this way last month:

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