A reversal of the changes to the Future of Financial Advice (FoFA) legislation which was introduced on 1 July 2014, passed through the senate last night after several senators backed away from the agreement previously struck with the Abbott Government. Senators Jacqui Lambie of the Palmer United Party (PUP) and Ricky Muir of the Motoring Enthusiasts Party added their support to Labor senator Sam Dastyari’s move to have the changes revoked. On Tuesday, Senator Dastyari had also managed to secure the votes of all Greens senators and those of independents John Madigan and Nick Xenophon, giving Labor the votes it needed to undo the recent deal struck between Clive Palmer (on behalf of PUP) and Finance Minister, Mathias Cormann.
The disallowance motion removes all the changes which enabled the watering down of consumer protection laws in relation to financial advice.
Senator Dastyari said of the move that it was a “coalition of common sense”. “We’ve put together a group of senators who’ve said ‘Enough’s enough, there have been too many victims of financial crime and the last thing we should be doing is watering down protections for consumers,” he said. “These regulations by Mathias Cormann were returning us to the bad old days of financial planning where a handful of crooks, criminals and conmen dominated the industry.”
While senators Lambie and Muir were denounced by Clive Palmer for changing their minds after amendments to the legislation requested by them had been implemented, Jacquie Lambie stood firm. “I have to do what’s right by my conscience and I believe we’ve allowed it to be watered down – and that’s the issue I have with it, I’ve had that issue all along with it,” she said.
“The first couple of weeks of being up in the Senate were very difficult, we were all trying to find our way—well, I’ve found my way now. You know what, sometimes when you make a wrong (sic) you have to go back in there and make it right, and that’s exactly what I’m doing now, ” Senator Lambie responded.
Senator Corrmann called on senators Lambie and Muir to honour the agreement and said that disallowing the changes would be bad for small business financial advisors and their clients.
Read more at SMH.com.au
Who knows what really prompted the back flip by senators Lambie and Muir to support the disallowance of changes to FoFA, and frankly, who cares? Common sense has prevailed.
However, what has probably been just as damaging as the removal of consumer protection laws in the FoFA debacle, is the sheer confusion it has caused for those who desperately need to seek financial advice. Quite honestly, the average consumer can be forgiven for not knowing where they stand with financial advisers. So, should the vote indeed pass the Senate and the changes are disallowed, what will this mean for you?
In simple terms, consumers will notice the following:
- Financial advisers will have a clear obligation to act in a client’s best interests at all times.
- Conflict payments, such as wholesale bonuses to financial planning dealer groups based on their sales will be banned, meaning clients should expect to receive unconflicted advice.
- Any fees, be they upfront or trailing commission, will have to be disclosed regularly, with advisers being required to contact clients at least every two years to ensure they are happy to keep paying fees.
- The Australian securities and Investments Commission (ASIC) has noted the disallowance and stated that it will “take a practical and measured approach to administering the law” and work in a facilitative manner with financial services licensees until 1 July 2015 – i.e. it will allow planners time to get their act together in the wake of the reversal of legislation.
When reviewing this list, it’s difficult to see what all the fuss was about, as these measures are, in plain terms, no-brainers. However, the reinstatement of such protection measures will hurt the big four banks and AMP financially, so it’s no surprise that this is where most of the government’s support is garnered.
Financial planning scandals are never far from the headlines and we can only hope that the increased commentary surrounding, and awareness of, financial planning regulations will make such scandals a thing of the past.
Do you think that the disallowance of the changes will actually help consumers? Do these changes make you feel more confident about seeking financial advice? Or do you think that the whole financial planning industry has been tainted by scandal?