FOFA Anna Bligh Australian Banking Association

Australian Banking Association chief Anna Bligh.

Kudos to the Australian Banking Association for agreeing to amend its banking code of conduct to address banks charging fees for no service and charging dead people. “It has always been unacceptable for any organisations to charge fees without providing a service,” ABA head Anna Bligh generously acknowledged, ahead of a media conference Wednesday morning, breaking the ABA’s silence on the banking royal commission.

The ABA also intends to lobby for changes to the Future of Financial Advice (FOFA) regulatory framework to ban grandfathered commissions and trail commissions. That’s something of a change of tune from 2012:

The ABA strongly argues the need for the FOFA legislative package to include grandfathering provisions. It is essential that existing workplace arrangements and current contracts and agreements are not unreasonably and unfairly impacted by the new law.

That was the ABA in its lengthy submission to a parliamentary inquiry demanding a complete neutering of the Gillard government’s FOFA bill. Amongst other things, the ABA wanted to gut the controversial “opt-in” clause, which would have required — gasp! — financial planners to seek permission from clients to charge them fees every year.

The ABA also wanted to retain conflicted remuneration and incentive payments, expand grandfathering to other areas and delay the laws. They had another bite at the cherry in 2014 when the Coalition tried to repeal FOFA. Between 2010 and 2014, the big four banks gave $1.76 million in donations to the Coalition (and $1.1 million to Labor).

Needless to say, the bankers weren’t the only ones trying to gut the laws. The legislative process around FOFA during the period was another example of how power works in Australia, with major vested interests using their political connections and donations to direct the political system to work for them rather than for the community. But it’s also an unusual example in that many of the participants who tried to debauch the process now admit they were wrong.

These were the industry players who tried to prevent FOFA, or lobbied for its repeal:

Financial Planning Association

The FPA was one of the most vociferous opponents of FOFA, and claimed “opt-in” was actually a negative for customers. “The FPA do not believe the client renewal ‘opt-in’ measure is necessary … and merely poses risks to the client,” it told a parliamentary inquiry in 2011.

They claimed a “best interests” requirement for financial planners “might be an encouragement to litigation or over zealous enforcement” unless worded as narrowly as possible, and the government should set up a subsidy scheme for financial advice. The FPA also funded a “grassroots” lobbying campaign directed at crossbenchers, and AEC records show it gave $20,000 to the Liberals in 2013, $13,000 in 2014 and $12,500 in 2015.

Financial Services Council

The big-bank and AMP-controlled lobby group for retail super — a serial donor to both sides of politics — also aggressively lobbied against FOFA. It opposed opt-in, demanding that it be replaced with “opt-out” (essentially ensuring that clients and superannuation account holders unaware they were being charged would continue to be gouged) and that grandfathering be dramatically expanded. The FSC then supported the Coalition’s attempt to gut FOFA but thought it needed to be watered down even further.

Association of Financial Advisers 

The dead-enders of the financial planning sector warned FOFA would “decimate” the industry, railing against “opt-in” and not even supporting a “best interests” requirement unless “it could be made practical and would not lead to uncertainty and a litigious environment”. At an inquiry hearing it claimed 30,000 jobs were at risk, despite the industry only employing 17,000 people in total. It too cheered on the Coalition’s repeal of FOFA in 2014 and, like the FSC, wanted the government to go further and water down what was left.

AMP

The company that would later give us life insurance for dead people attacked opt-in, demanded an even longer delay than the rest of the industry, wanted the removal of requirements to tell clients about fees and the restriction of the “best interests” duty to apply strictly at the moment advice was given — not afterward. AMP’s Craig Meller also claimed FOFA would destroy 25,000 jobs. The company donated over $100,000 each to both sides during the period.

In the end the ABA, the FPA, the FSC, the AFA and AMP were partly successful, managing to water down FOFA. At no stage have any of them offered an apology for their actions in the light of what we’ve learnt from the royal commission. 

Next: the politicians who helped undermine FOFA.

Peter Fray

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