The Coalition’s Future of Financial Advice (FoFA) changes look likely to be unwound in the Senate as the freshly demoted PUP party Senator Jacqui Lambie begins distancing herself from Clive Palmer.
The move is a major setback to finance minister Mathias Cormann, who brokered a deal with Palmer in June to wind back Labor’s tougher rules on financial advice.
The deal was welcomed by the financial industry when it was struck as the reforms were seen as an administrative burden on financial professionals. However there have remained concerns about financial advisors acting in the best interests of their clients, particularly when those advisors are part of large banks which have both investment products and customer-facing financial advice services.
This morning, Lambie joined Australian Motoring Enthusiast Party member Ricky Muir and independent senators Nick Xenophon and John Madigan, and the Greens to move disallowance motion to end the wind back.
Because Cormann introduced the changes as regulation rather than legislation, it makes the change easier, and may come as soon as today. Lambie says her decision to reverse her vote, along with Muir, was not related to tensions with her party leader.
“When you make it wrong, you have to go back in and make it right,” she said.
Senator Xenophon called the voting block a “coalition of common sense”. He called on Cormann to broker a compromise on the issue at a media conference earlier today while flanked by victims of the Timbercorp collapse who lost everything due to poor financial advice.
A emergency Senate committee has been investigating the Timbercorp’s 2009 failure and the roll of the ANZ bank, which has been calling in debts from investors, with ALP senator Sam Dastyari suggesting up to 3000 families may lose their homes. The agribusiness has offered large commissions to financial advisers who signed up investors in what’s been described as a giant ponzi scheme. Many investors borrowed money on the advice of planners.
If the disallowance motion passes, it will strike directly at the major banks who lobbied the government to water down the FoFA reforms, introduced by Labor in 2013 in the wake of the Storm Financial and Trio collapses, which revealed that financial advice was driven in part by the commissions paid to the advisors.
Continuing financial advice scandals including one involving the Commonwealth Bank appear to have reinforced the concerns of those against the softening Labor’s FoFA rules.
If Lambie’s change of heart leads to the disallowance motion succeeding, it will restore Labor’s original reforms, forcing financial advisers to negotiate a new contract with clients every two years and reveal the fees they charge. It also prevents commissions, incentives and other bonuses for volume selling of financial products.
In response, the Financial Planning Association says the failure of the amendments will have a catastrophic effect across the financial services industry, with FPA CEO Mark Rantall saying it will continue five years of uncertainty for financial planners and their clients.
“The industry has been adhering to these Regulations for nearly five months,” he says. “This disallowance motion has the potential to put the entire financial services industry immediately into breach of the law.”
He says the Coalition’s amendments ensured the FoFA reforms remained intact in a sensible way that reduced red tape and maintained vital consumer protections.
“The original FoFA reforms created unnecessary red tape and compliance driven processes that did not achieve the then Minister’s stated aim of improving the quality of advice for consumers.
“The original FoFA requirements, such as opt-in and retrospective Fee Disclosure Statement (FDS), created back end red tape that did not improve client outcomes or services for clients. Clients agree to set Terms of Engagements with their financial planner, a contract that binds the planner to service agreements but allows the client to legally opt out of the arrangement at any time. Fees and services are properly disclosed upfront under the amended FoFA reforms,” he said.