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Jul 15, 2014

Palmer’s pointless red tape hands banks a big win on FOFA

On the day the financial services inquiry is flagging the high cost of vertically integrated wealth management, Clive Palmer looks set to help the government gut consumer protections.

The opposition’s effort to prevent the government from gutting the Future of Financial Advice consumer protections appears doomed to fail, with a desperate government agreeing to a series of demands from Clive Palmer for more red tape in financial planning laws.

As reported today by Phil Coorey and Laura Tingle in the Financial Review, Palmer has asked for four changes to financial planning laws in exchange for not supporting Labor’s motion to disallow the regulation. They are:

  • providers of financial advice to issue a “legally binding” advice to clients that advice is independent and in the best interests of the client;
  • providers of financial advice to advise in detail on fees that would be paid by the client;
  • a “cooling off” period after a client agrees to investment advice; and
  • an escape clause for investors to switch strategies in the event of under performance.

Crikey understands that the government, which has promised the big four banks and AMP that it will gut FOFA and is desperate to ensure its repeal regulation survives in the Senate, has agreed to Palmer’s demands, which would require additional regulations to be made, or they will be added to the FOFA repeal bill the government will eventually bring before the Senate.

However, industry experts from all sectors say Palmer’s checklist adds nothing to existing requirements and fails to address the systemic problems created by the government’s repeal of FOFA in relation to conflicted remuneration, while imposing more red tape:

  • a requirement for “legally binding statement” would add nothing to existing requirements except more red tape — advisers either comply with the Corporations Act’s requirements on acting in a client’ best interests or they don’t, and a compulsory statement won’t change that;
  • advice on commissions and fees will merely perpetuate current arrangements that are inferior to the “opt-in” requirement abolish by the government, which required planners to tell clients their fees and commissions every two years and obtain clients’ agreement to them;
  • there’s already a cooling off period in the Corporations Act;
  • investors can switch strategies now — and most decisions to switch come after disruptive events have already inflicted significant losses on investors.

The only requirement likely to cause any concerns among the big banks and financial planning groups cheering on the gutting of FOFA relates to the assurance of “independent” advice. That would depend entirely on the drafting and definition of “independence”, a concept that isn’t currently used in the laws covering financial services.

In short, the Palmer “demands” add little to existing requirements and don’t address the systemic flaws of the government’s repeal, which includes a drafting flaw opening the way to the full return of conflicted remuneration.

If the government and PUP defeat the motion to disallow, it will be a huge victory for the vertically integrated financial planning arms of the big banks and AMP, which at one stage were the only supporters of the government’s gutting of FOFA, with even financial planners baulking at the return to open slather on conflicted remuneration.

Remarkably, it also comes the day the Financial Services Inquiry, in its interim report, has raised concerns about vertical integration in superannuation and the resulting higher costs for clients in the retail super sector. The inquiry’s interim report says

“A trend in the wealth management sector is towards more vertical integration. Although this can provide some benefits to members of superannuation funds, the degree of cross-selling of services may reduce competitive pressures and contribute to higher costs in the sector.”

A return to the status quo ante on financial planning regulation will see a big shift in wealth from clients to vertically integrated providers, possibly up to half a billion dollars a year, as retail funds take advantage of conflicted remuneration, a watered down “best interests” test and softer disclosure laws to gouge clients, perpetuating exactly the problem David Murray’s inquiry is warning against.

It’s also another example of policy on the run from a government that professes itself to be an opponent of red tape, but which is eager to pile it on if it brings Clive Palmer’s support in the Senate. In this case, the red tape will do nothing to help consumers, who are the big losers from the deal.

Between the Commonwealth Bank’s behaviour, the ASIC inquiry, the government’s efforts to gut consumer protection and, now, the deal with Clive Palmer, the longer term question is whether the financial planning industry can regain the trust of Australians. With FOFA repealed and a weakened regulator, why would anyone trust a financial planner linked to the big banks or AMP?

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18 comments

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18 thoughts on “Palmer’s pointless red tape hands banks a big win on FOFA

  1. zut alors

    Should there be another scandal similar to the fallover of Storm it will leave a stench on the Abbott government which will be seen to have sided with the corporate set rather than suburban investors (aka voters).

  2. Bob's Uncle

    Thanks Bernard for helping to keep this story alive (it seems only Crikey and Fairfax see anything of note here).

    One of the reasons for the Government’s desperation is a lack of preliminary work for the 1 July start date. A consultant at one affected institutions told me last year of the detailed compliance work that was going on in preparation for FOFA (perhaps a 12 month project) – and how some banks had taken the decision not to even bother with this compliance work following the last election.

    If FOFA in its current form (and in particular some of the notification and customer consent requirements) DO go into operation, the sh*t is likely to hit the fan in a big way in at least a couple of the Big 4. Would have been fun to hear a question about preparation status at a certain recent Senate enquiry.

  3. klewso

    The original “Bacchus” wasn’t much of a politician either – he was too pissed too?

  4. klewso

    This bloke will be held to account too – “aiding and abbotting” this government.

  5. Mark from Melbourne

    Our disgusting government at work. Palmer plays with the idea of looking after people but is as sleazy as the rest of them, if not more so.

  6. tonyfunnywalker

    A number of Financial Planners have been acquired by the big 4 and recent correspondence suggests a high level of corporatisation of the “Lisensed Planners” following the regulation change on the 1st July.
    All the banks need to do is to shift their ” wealth planning ” to their fully owned subsiduaries rather than to in-house planners where conflict of interest may be raised as an objection to the sale.
    The tagging can still occur of customers or prospective customers to the ” Independent” (the bank owned planners) with the commission system remaining intact for bank “referrals”.
    These regulations are wide open to abuse and unless all loopholes are closed to include “directed sales referencing ” to wholly owned Subsiduaries and Agencies.
    Directed Selling is illegal under the TPA was my understanding although it is rife in the automotive, IT, car insurance and electronics industry — so why not the banks?

  7. Karen

    Yet another free kick to big business and conservative ideology. Under Abbott, big business has not only pretty well avoided any impost and cuts to subsidies, but now enjoys tax cuts and other anticipated transfers, such as this. Who pays? The community, of course, through service cuts and major imposts on tertiary education. When will these masochistic voters (who worry about shekels and not the big picture) realise they have been had, I wonder? Or are they going to allow themselves to be led by the nose again, come the next election?

  8. CML

    Up until now, I have found Clive Palmer’s antics amusing.
    Suddenly you are not funny anymore, Clive. You and your party are putting the financial affairs of many Australians at risk.
    Where is the likes of Jacqui Lambie who promised to cross the floor if she was asked to vote on legislation which adversely affected Tasmanians. Don’t your voters ever seek advice from financial planners, Jacqui? You have a loud mouth and no follow through, it seems.
    And the other cross-benchers in the Senate are no better. At least we will know who to blame when the sh+t hits the fan – as it inevitably will!!

  9. Yclept

    “why would anyone trust a financial planner linked to the big banks or AMP?”

    Well I’ve never trusted them and I certainly won’t be taking any of my hard earned near any so called financial planners ever. DIY thanks!

  10. Karen

    CML, we all know PUP is full of the proverbial. Voters should have been aware that PUP being the ultra right wing party that it is, is focussed on the interests of big business as it has done by supporting the government.

    And as for those stupid, meaningless, “claytons” amendments that PUP pushes through, what does it actually achieve for the community e.g.. so called PUP FOFA protections that are already legislatively enshrined. Give me a break. And as for passing on savings of $550/household following the abolition of the carbon tax, put up your hand if you believe that one, lol.

    But then, feisty little Jacqui doesn’t care what anyone thinks. She’s got her self a nice little senate sinecure, her angry face on TV, and a pension to ride off into the sunset when its all over. Yeah, it would appear that it does pay to play the bogun and pretend to be a woman/man of the people…