The Opposition’s attempt to disallow the Government’s Future of Financial Advice (FoFA) regulations has failed, following an eleventh-hour deal between Senator Mathias Cormann and Clive Palmer.
As expected, the Labor Party yesterday tabled a motion in the Senate to disallow the Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014. The motion was made possible by Senator Sam Dastyari, who last week took the unusual step of introducing the Government’s own regulations into the Senate.
However, the Labor Party was unable to secure enough votes to support its motion, after Senator Cormann confirmed he had come to an agreement with the Palmer United and Motoring Enthusiasts Parties on the controversial reforms.
I have written to Mr Palmer about a range of additional measures…
“I’m pleased to inform the Senate that the Government has reached agreement with the Palmer United Party and that I have written to Mr Palmer about a range of additional measures that the Government will pursue, by way of further regulations, in order to take on board the positive suggestions that were made by Mr Palmer on behalf of the Palmer United Party,” Senator Cormann said.
He then read from the letter to Mr Palmer, outlining the requirements agreed. They include:
- Ensuring the following requirements, as set out in the Corporations Act, are explicitly listed in the Statement of Advice (SoA), which is to be signed-off by both the adviser and the client:
- That the adviser is required to act in the best interests of their client and prioritise their clients’ interests ahead of their own
- That any fees be disclosed and that the adviser provide a fee disclosure statement annually if the client enters into an ongoing fee arrangement after 1 July 2013
- That a client has the right to return financial products under a 14-day cooling-off period
- That the client has the right to change his or her instructions to their adviser, if, for example, they experience a change in their circumstances
- That any requests to alter or review instructions must be in writing, signed by the client and acknowledged by the adviser
- A requirement that the financial adviser provides an explicit statement in the SoA that he or she genuinely believes the advice provided is in the clients’ best interests, given the clients’ relevant circumstances
In addition, Senator Cormann said the Government would work in consultation with all relevant stakeholders to establish an enhanced public register of financial advisers, including employee-advisers, which includes a record of each adviser’s credentials and status in the industry.
In order to make these changes, the Government will generate additional regulations, committing to do this within 90 days. The changes will also be included in amendments to the FoFA amendments legislation, which is currently awaiting debate in the House of Representatives.
The Association of Financial Advisers (AFA) expressed its thanks to the Palmer United Party, and cross-bench Senators Day, Leyonhjelm and Muir, who voted with the Government to retain the amendment regulations.
“The prospect of having the FoFA amendments regulations disallowed in the Senate, as a result of a vigorous campaign of misinformation by opponents of these reforms, was deeply disturbing to our members,” said AFA CEO, Brad Fox.
Mr Fox led a delegation of senior AFA representatives to Canberra yesterday to meet with Senators from all sides of the parliamentary debate.
…when the dust settles, Australians will discover that they are protected by the strongest financial advice laws in the world
“In the context of the level of misinformation we have seen around this debate and the complexity of some of the issues involved, we welcome the level of interest shown by the Senators. We particularly thank them for making time at short notice to meet with us yesterday. They expressed their understanding of how important this issue is for consumers and our members, most of whom are small business owners giving great advice to people in their local community,” Mr Fox said.
“The AFA is confident that when the dust settles, Australians will discover that they are protected by the strongest financial advice laws in the world and that the access to quality financial advice in Australia will improve as a result of the amendments to FoFA,” he added.
The Financial Planning Association (FPA) also welcomed the outcome.
“We fought hard to ensure there were no loopholes for the re-introduction of commissions on superannuation and investments,” said FPA CEO, Mark Rantall. “The Government listened and we’re pleased that’s ratified today. The regulations will maintain consumer protections and ensure no commissions are re-introduced for general advice.
“We welcome passage of the regulations through the Senate today and acknowledge the pragmatic approach taken by the Palmer United Party and the Coalition to give certainty to financial planners and clients.
“We will digest the detail behind the regulatory changes occurring in 90 days and stand ready to assist the Government in implementing any changes for financial planners,” Mr Rantall said.
Outgoing Financial Services Council CEO, John Brogden, said the amendments proposed by the Palmer United Party were constructive, practical and sensible.
The best interest duty remains intact
“The new FoFA regime will allow more accessible and affordable quality advice to millions more Australians whilst maintaining the highest level of consumer protection in the world,” Mr Brogden said.
“The best interest duty remains intact. Financial advisers will, by law, be required to act in the best interests of their clients.
“We thank the cross-bench Senators for their support.”
In contrast, Industry Super Australia (ISA) criticised the Palmer United Party for failing to address the fundamental problems with the regulations.
‘While detail of the deal is limited, on face value the proposed changes don’t involve any significant additional strengthening of existing laws and don’t address conflicted payments that distort advice,’ the ISA said in a statement issued in response to Senator Cormann’s announcement.
‘Of particular concern is the heavy reliance on disclosure, despite clear evidence from the regulator ASIC that it isn’t an effective tool to improve the quality of advice.
‘Specifically, enhanced Statements of Advice are not required for general advice – so there will be no disclosure of conflicted payments associated with products sold through the newly created general advice exemption.’
The Government will now move forward with the progression of the FoFA amendments legislation through Parliament, along with the tabling of the additional regulations requested by Mr Palmer.
Common sense has finally prevailed. Thank you to all the Senators who voted in favour of the amendments and for taking the time to understand the impact that the Legislation would have had on our industry and the many Advisers who work extremely hard to provide sound financial advice to their clients. Thank you to the AFA and the FPA for the massive efforts in working for our industry to achieve this outcome. Hopefully we can now put this uncertainty behind us and get back to focusing on our clients financial needs. It is now up to the industry, including all participants, to focus on the clients needs and cease the self interest propaganda, misinformation and lies that have a part of this debate.
Obviously the ISA and ‘the opposition’ are one and the same thing!
O/k, next step: Full fee disclosure and transparency of Industry Super Funds
Now it’s time to deal with some of the ISN and Industry Fund shortfalls eg:
1. Industry Fund trustee qualifications and experience.
2. Industry Fund asset allocations and investment performance claims. In particular valuation of
assets held directly by the funds.
3. The requirement for SOA’s to be produced by Industry Funds when dealing with personal
advice.
4. Conflict of interest exhibited by ISN as a result of misinformation expounded to the public.
5. Removal of superannuation from industry awards.
Add to the above…. by FSS
6. Enquiry into the reporting requirements applicable to Industry funds and vertically integrated product providers as unbeknown to many, amounts are legally able to be syphoned off prior to allocation to investors accounts. It’s disgraceful.
well done to the govt and all senators who voted for common sense we now need to get the industry funds to be looked at and comply with the correct rules re full disclosure and transparency
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