The failure of the government’s long-running attempt to repeal the Future of Financial Advice laws has its genesis as much in decisions made at the end of 2013 as in Senator Jacqui Lambie’s departure from the Palmer United Party and Labor’s doggedness in pursuit of the outcome it achieved yesterday evening.
Right before Christmas last year, then-assistant treasurer Arthur Sinodinos snuck out the government’s planned gutting of FOFA, intended to deliver on the Coalition’s commitments to the big banks and AMP, which control retail superannuation, and the diminishing but still powerful segment of the financial planning industry that relies on conflicted remuneration. Key to Sinodinos’ strategy was doing as much of the gutting as possible by regulation — so much so that eventually a real legal question emerged as to whether regulations made under a piece of legislation could in effect void the legislation itself. But the regulatory route promised two benefits: it would be quicker — regulations would take effect immediately despite a disallowance period, whereas legislation would not come into effect until passed — and it would be lower profile. A clear aim of the government at that point was to minimise debate over the repeal.
It worked for a while, but not for long. Initially, Crikey was a lone voice in criticising the repeal, drawing on information provided by sources in both the industry and retail super camps. But to its credit, the Financial Review took on the issue and, for once, adopted a pro-consumer angle. Critics of the repeal began to multiply. By the time Sinodinos had stepped aside and Finance Minister Mathias Cormann, architect in opposition of the repeal, returned to take charge, it was in trouble. The astonishing revelations of the Senate Economics committee inquiry into Commonwealth Financial Planning, and the Australian Securities and Investments Commission’s staggeringly inept “oversight” of it, were particularly damaging. When Clive Palmer declared the government could “stick it up their arse”, it looked as though the repeal was dead in the water. But Cormann applied himself to talking Palmer around, and by the time Labor moved to both introduce and disallow the repeal regulations in July, Palmer stymied the effort and, via his three newly minted senators and Ricky Muir, handed the government, the big banks and financial planners a huge win.
“Regardless of the whingeing of a rump of financial planners, this is a win for consumers and for good policy.”
But the flaw in the government’s strategy then emerged: in disallowing regulations, you don’t get just one bite at the cherry — it’s there for the biting for 15 sitting days. If the government had gone the legislative route and secured a deal with Palmer, the matter would have been settled for good. In its rush to deliver for the big banks, the government had left itself exposed if the deal with Palmer broke down. Labor tried again in October, and failed. Labor Senator Sam Dastyari didn’t give up, and once Lambie and Palmer had fallen out, pursued the Tasmanian Senator. Ricky Muir was swayed by the evidence emerging the inquiry into forestry managed investment schemes involving Timbercorp and ANZ Bank, chaired by Dastyari. One of the well-known victims of the Timbercorp collapse, Naomi Halpern, who ended up with a $650,000 debt after advice from a conflicted accountant, Peter Holt, was in Parliament House yesterday to support the overturning of the repeal.
At the third attempt, with the backing of Muir and Lambie and other crossbench opponents of the repeal like Nick Xenophon, Labor secured the disallowance, after many hours of procedural manoeuvrings and filibustering by the government. In the end, Abbott just didn’t have the numbers.
The retail super and financial advice sectors are now crying foul, calling the restoration of bans on conflicted remuneration, and requirements such as formally asking clients if advisers can charge them fees, as “catastrophic”. Expect retail super to now launch a huge campaign, funded by the bottomless profits of the big banks, to portray yesterday’s outcome as an economic disaster that needs urgent attention. But industry is also responsible for the mess it now finds itself in, having enthusiastically supported the government’s determination to rush the repeal through parliament without proper scrutiny. This is an industry with a profound public image problem — so bad that the big bank front group, the Financial Services Council, acutely embarrassed the government in September when it called for an end to self-regulation in the industry and the establishment of a statutory body to oversee financial planners (there’s supposed to already be one, ASIC, but it is universally regarded as a joke).