As the curtain comes down on the current Parliament, Mike Taylor writes that financial services players are left to wonder whether the Government shouldn’t have just stuck to the script reflected in the bipartisan report of the Parliamentary Joint Committee which followed the collapse of Storm Financial.
When Parliament rises at the end of next week it will likely spell the end of the financial services reform agenda begun by the Australian Labor Party shortly after it returned to Government in 2007 under the Prime Ministership of Kevin Rudd.
In its two terms of Government under first Rudd and then Gillard, the ALP treated financial services as a junior portfolio – first under the stewardship of Tasmanian Senator, Nick Sherry; then under NSW up-and-comer Chris Bowen; and then under the current Minister for Employment and Workplace Relations and Minister for Financial Services and Superannuation, Bill Shorten.
While it might be argued that Shorten’s mega-portfolio meant financial services was finally given Cabinet status, the reality was very different. Employment and Workplace Relations was, as it always had been, the Cabinet portfolio.
This, of course, begs the question of why an ambitious politician such as Bill Shorten would choose to hold on to a lesser portfolio such as financial services when he had been elevated to Cabinet and might have divested the task to someone such as the current Assistant Treasurer, David Bradbury.
It is now evident that Shorten retained control of financial services because it was central to the interests of a core Labor constituency – the industry funds and not-for-profit sectors.
Thus, any examination of the policies implemented by the Government, particularly since 2010, must be undertaken in the context of the long-running arguments around the provision of financial advice with respect to superannuation and the appropriateness or otherwise of commission-based remuneration.
However, the zeal with which the Future of Financial Advice (FOFA) changes would be pursued by the Government was not particularly evident when Kevin Rudd led the party to power in 2007.
While signaling an aversion to commission-based remuneration and a need for change, Nick Sherry avoided any reference to root and branch change. He did not discuss a rebuild of the system. Rather, he used the word “renovation”.
Sherry’s successor in the portfolio, Chris Bowen, similarly indicated the Labor Government’s concerns about commissions and conflicted remuneration – but his rhetoric hardened in the wake of Storm Financial and the consequent damaging fall-out.
However, as damaging as the Storm Financial collapse was to the broader financial planning industry, the consequent Parliamentary Joint Committee (PJC) review of the planning industry delivered a largely moderate, bipartisan report, the recommendations of which were equally moderately accepted by the planning industry.
It was the translation of those PJC recommendations into legislation under the stewardship of Shorten which ended the political bipartisanship and the acquiescence of the planning industry to what they regarded as moderate change.
The nature of the legislative changes canvassed by Shorten prompted many in the financial planning industry to reflect that the minister had been the national secretary of the Australian Workers’ Union and, as such, a trustee director of one of the nation’s largest industry superannuation funds.
Those references to the minister’s trade union roots were then given substance by the perceived level of influence exerted by the Industry Super Network – the vehicle via which a number of industry funds had financed the highly effective “compare the pair” television advertising campaign which highlighted the conflict between the payment of commissions and the delivery of advice.
At the same time as the Government was prosecuting its FOFA agenda, it was also pursuing implementation of its Stronger Super policy based on the findings of the Cooper Review.
However, in doing so, it was resisting calls for the opening up of the default fund regime to allow all approved MySuper schemes to participate.
As well, it chose to ignore that part of the Cooper Review recommendations which went to the appointment of independent directors.
At the time of writing, virtually all of the Government’s planner-related FOFA agenda had passed the Parliament, albeit that many elements of the resultant regulations remained to be finalised.
On the Stronger Super front, the so-called fourth tranche had not made its way through the Senate and seemed unlikely to do so unless it was made a priority issue by the Government.
In the absence of tranche four passing the Senate, the ALP looked likely to go to the election with its financial services/superannuation agenda incomplete, and with the Federal Opposition reaffirming that it would be following through on delivering key amendments.
The Opposition amendments are such that, if the Coalition were to gain power on 14 September, the FOFA changes would much more closely approximate to the bipartisan position which emerged from the original post-Storm Parliamentary Joint Committee.
If that proves to be the case, there will be many in the industry wondering why all the political angst was necessary.