Reforms designed to restore confidence in the financial services sector are at risk of being derailed following intense lobbying from a powerful group of planner networks and industry associations.
At least one key independent MP does not support aspects of the Future of Financial Advice (FOFA) reforms and another is wavering following a well-orchestrated campaign targeting MPs in marginal electorates.
Independent MP Rob Oakeshott was the first to capitulate to the pressure in a statement to Eureka Report: “The opt-in arrangement … is a problem for many smaller financial businesses in regional Australia … I am considering amending this to at least five-year service agreements and would be interested to see if the Coalition wishes to go further.”
Greens MP Adam Bandt has similar concerns: “The Greens support the general direction of the government’s package … (but) we will be looking closely at the opt-in arrangements.”
The opt-in arrangement is central to the government’s reforms. It would require investors to opt-in as an adviser’s client every two years. It would eliminate the possibility of advisers collecting fees from clients in periods where no advice was given nor action taken.
The original recommendation was for opt-in service agreements to take place every 12 months but was raised to two years in a concession designed to appease the industry.
Having successfully influenced government policy, the industry has turned its attention to the opposition, which last week announced it would repeal the opt-in service requirements and the banning of commissions on life insurance bought inside superannuation.
The opposition spokesman on financial services and superannuation, Senator Mathius Cormann, said in a statement: “Labor’s push to force people to keep re-signing contracts with their financial advisers on a regular basis is bad public policy.”
That arguably the most important reforms in the sector’s history now stand to be blocked is a devastating blow for Eureka Report’s 20,000-plus readers and the one million self-managed super fund trustees who are weary of a system riddled with conflicts and have voted with their feet.
When Oakeshott’s views were relayed to the office of Bill Shorten, whose portfolio covers superannuation, a spokesman said: “The government respects Mr Oakeshott’s views and we will continue to discuss this issue with him … it comes as no surprise that the financial planning industry is lobbying hard … (but) the government is convinced that two years opt-in is a fair and equitable timeframe.”
While lobbying normally takes place behind closed doors, Eureka Report has paid special attention to this process and how it has unfolded.
Among the first in line to publicly denounce the reforms was the $14 billion financial services giant AMP. With a network of more than 4000 financial planners across Australia and New Zealand, following its acquisition of AXA Asia-Pacific in March, it’s no surprise that they were at the forefront of the debate.
In an interview with industry publication Professional Planner soon after the reforms were released, AMP’s managing director of financial services, Craig Meller, laid out the house view.
“When you look holistically at the reforms that are coming through within FOFA, we don’t believe that [opt-in] is something that’s necessary,” he said. “Our recommendation would be that it’s not something that we think is going to play any part in solving the issue that the government set out to achieve.”
The same view, perhaps less eloquently expressed, is shared by many other dealer groups, which have complained to the media of the “red tape” and “administrative overkill” of this seemingly innocuous requirement to get clients to sign a document every two years.
Their anger at potentially being cut off from such a lucrative source of revenue has been palpable and was expertly harnessed by the Association of Financial Advisers. The Association of Financial Advisers is small, at 1300 members, but powerful on account of the 400,000 people its membership base employs in practices across Australia.
At the beginning of May they rallied the troops by distributing a “Political Engagement Pack”, which identifies marginal seats and encourages financial advisers in those electorates to lobby their local member with “key talking points” designed to sway them against the reforms.
The pack includes the names, parliamentary phone numbers and email addresses of all of the independents and any MP who would be tipped out of their seat by a swing of less than 6%.
The document also includes helpful hints for advisers prepared to meet their MP in person, such as “Be on time” and “Stay on message”. In a subtle reference to the size and reach of the association it also suggests advisers explain how FOFA will impact their “number of staff”.
For now, the remaining independents and unaffiliated members of parliament who are crucial to Labour’s minority government are undecided. According to Andrew Wilkie, the independent member for Denison: “These are complex reforms and I’m yet to decide my position.”
Bob Katter, the independent member for Kennedy, said: “We have to consider the implications of this particular piece of legislation and are awaiting debate in the house.” Independent MP Tony Windsor and WA Nationals MP Tony Crook were contacted for this report but unable to comment.
But with Oakeshott’s decision to side with the Liberal Party on opt-in, and Bandt wavering on the issue, the possibility of recommendations being sidelined, or at worst shelved entirely, simply can’t be ignored.
*This article first appeared on Eureka Report.
The ability of vested intests to influence policy for the worse, and to their own advantage, is not unexpected but it is still shocking.
Targeting marginal seats?
I really don’t think opt-ins on financial advice are a vote-changer for anyone.
These reforms will pass – cross benchers just keeping their cards close to their chests.
It will be really interesting to see the reasons are put as to why opt-in is a bad thing. “We like our easy money” probably wont cut it.
Shame on you Rob, a modest measure aimed at increasing the retirement income of millions over time.I hope you don’t dump your support for the carbon price proposal as readily.
[The opposition spokesman on financial services and superannuation, Senator Mathius Cormann, said in a statement: “Labor’s push to force people to keep re-signing contracts with their financial advisers on a regular basis is bad public policy.”]
Cormann is trying to channel his leader Tony Abbott, in giving blunt negative statements without any rationale or logic or indeed any kind of reason at all. His performance on ABC Lateline last night in the Tony Jones interview was lamentable and embarassing. It looked like Jones was about to give up on the interview because Cormann just wanted to parrot his big new tax line nevermind which question was asked. It looks like Barnaby Joyce has competition for least competent opposition finance spokesperson.
(abc.net.au/lateline/content/2011/s3227142.htm)
(on budget black holes, big new mining taxes and sovereign risk: you can go to the website to see some of Cormann’s non-answers)
[ Q1. TONY JONES: Does the WA Government’s decision to raise an extra $2 billion from mining taxes create a sovereign risk to the state’s booming mining sector?
Q2. TONY JONES: Yes, but hang on for one second. You can talk about that in a minute, but I just asked you about the WA Government’s tax, the $2 billion royalty tax. I mean, is it going to create a sovereign risk for the mining sector?
Q3. TONY JONES: Yes, but just take one step back. You can talk about that in a moment, but we’re actually not talking about that right now; we’re talking about the West Australian Government’s decision to impose a $2 billion mining tax, and I’m asking you if that $2 billion West Australian tax is going to pose some sort of problem for the mining industry.
…………………………….
Q6. TONY JONES: OK. Can I just go to the principle here, because I thought the Liberal Party’s position was pretty clear on this: that any new, big tax on the mining industry in Western Australia was going to cost jobs and investment and pose a sovereign risk. Now a Liberal premier is doing precisely that in Western Australia. Does he believe, and do you believe, it’ll pose a sovereign risk, that tax?
MATHIAS CORMANN: What Colin Barnett has done in Western Australia is remove a concession which applied to iron ore fines, a royalty concession, to bring the royalty rate for iron ore fines to the same level as that which applies to iron ore lumps. That is to say, to move it to 7.5 per cent …
Q7. TONY JONES: Yes, he’s increasing the tax and he’s going to raise $2 billion.
……………………………….
Q11. TONY JONES: OK, I can see your point. But are you actually saying that there’s been a secret deal between the Liberal Premier of Western Australia and the Treasurer of Australia – a secret deal?
MATHIAS CORMANN: Well, no, what I’m saying is that there clearly have been a lot of discussions, there’s a lot of confusion, this whole thing is in a mess. Wayne Swan has made a mess of the policy and of the process, and the reason for that mess is because he didn’t properly consult with state and territory governments before pressing ahead with the mining tax deal.
Q12. TONY JONES: Alright, you’re shifting back to your other position. We’re actually talking about whether or not Wayne Swan has, as the Coalition has put it, lied about knowledge of the Western Australian Government’s plans to reimpose or impose this new tax.
Now, I’ve got to tell you the Treasurer’s office has tonight released a document showing how Colin Barnett said publicly on eight separate occasions that he wasn’t going to increase this tax – that’s eight separate occasions in eight months, the last one as late as 23rd February this year when he told 6PR – your radio station, I think – we don’t have any plans to increase royalties in Western Australia.
MATHIAS CORMANN: One of. Well, I mean, I guess Wayne Swan should tell us what was discussed in the meeting he had with the Premier on 19th April, 2010. There clearly is a letter from the WA Under-Treasurer to the then secretary of the Treasury, Ken Henry, which very clearly puts on the table plans to remove the concessions on royalty rates for iron ore fines to take it up to 7.5 per cent, the same as that which applies to iron ore lumps, which is exactly what the Government of course did in Western Australia …
Q13. TONY JONES: But are you actually saying that the Premier of Western Australia lied on eight separate occasion, knowing that he was actually going to increase this tax and saying consistently eight times that he wasn’t going to do it?
MATHIAS CORMANN: I’m goint to let the Premier of Western Australia talk for himself, but the point here …
Q14. TONY JONES: Well, he did, on eight separate occasions.]