And like that – it’s gone.
The Future of Financial Advice reforms – introduced by Labor in 2012 but partially wound back by the Coalition in July this year – are once again the ground rules for the conversations Australians have with professional advisers about their money.
The other thing that’s gone is Clive Palmer’s control of the balance of power in the Senate.
A quick recap of yesterday’s events:
- PUP Senator Jacqui Lambie was demoted by party leader Clive Palmer after weeks of mounting tension
- She promptly lined up with some independent Senators, led by Nick Xenophon, to announce they would side with the opposition on the financial advice reforms
- By a vote of 32-30 in the Senate, the regulation that wound back the Coalition’s changes to the financial advice reforms was removed from the statute books.
They were the key things that happened chronologically. But looking at the bigger picture, it means a more complex political landscape for the federal government that was already seen to be struggling to get things done.
Xenophon claimed to be leading a “coalition of common sense” that included Lambie and Ricky Muir, the accidental Senator from the Motoring Enthusiast party who was elected on complex preference flows despite a primary vote of 0.51% in last year’s election.
It is a massive coup for the opposition, with Labor’s Sam Dastyari helping to broker the deal with the defecting Senators.
At this point we don’t know what else this group might unite on in order to defeat government legislation. What we do know is that Clive Palmer, with only two votes reliably under his control in the Senate, is in a much weaker bargaining position.
Previously the government, with its 33 senators in the 76-seat upper house, needed six crossbench votes to to pass legislation that was opposed by the Greens and Labor. When he had Lambie and Muir lined up, Palmer could deliver four. Now he can only reliably deliver two.
There are still billions upon billions of dollars’ worth of budget measures awaiting passage through the Senate, including the $7 up-front payment for visiting a doctor and the changes to university fees. Some arm-wrestling with the PUP might have seen these passed before Christmas.
But Palmer’s split with Lambie is irretrievable. He rounded on her yesterday, branding her a liar that nobody could trust, and accused her of planning to set up her own political party. The negotiating routes for legislation are now changed.
And beyond the Canberra beltway, this feeds into wider problems in the economy. Confidence among consumers took a beating in the weeks surrounding the budget and has only just recovered. Business confidence remains muted, even amid a rise in conditions recently – something Glenn Stevens felt the need to comment on this week. “Firms wait for more evidence of stronger demand,” he said, “but part of the stronger demand will come from them.”
A week after a major survey found the business community was losing confidence in the Abbott government, this will not go unnoticed.
Soon after the rollback of the FOFA rollback was confirmed, the corporate regulator ASIC issued a statement suggesting not all of the changes are going to bite immediately:
We will take into account that – as a result of the change to the law that applies to the provision of financial advice – many Australian financial services (AFS) licensees will now need to make systems changes. ASIC recognises this issue may arise in particular areas, including fee disclosure statements and remuneration arrangements.
We will work with Australian financial services licensees, taking a facilitative approach until 1 July 2015.
John Brogden, outgoing CEO of the Financial Services Council, one of the groups that represents financial advice industry, warned the Senate’s actions would “create a legal quagmire that will lead to disruption and unnecessary costs and will reduce affordability and accessibility of financial advice.”
Here’s the thing, though: the financial advice industry has been preparing for these changes for years. They were originally proposed in 2012.
Among the key changes that affect financial advisers are the disclosure of so-called “trailing commissions”, or ongoing fees that clients will pay on arrangements and transactions.
Banks will also be unable to get advisers or front-of-house staff to steer customers towards in-house financial products for incentive payments. Today’s events are a win for the victims of unscrupulous financial planners who saw fit to clip customers’ tickets for themselves, their bosses and their mates.
But it is a colossal blow for the Abbott government. Its primary vote is slipping in the polls.
FOFA might not be the sexiest of topics but the issue has been the trigger for a massive political headache for the government as it shapes up for a likely shock-inducing update to the current state of the federal budget over the coming weeks, and a rough ride into Christmas.