Plenty left on the financial services reform agenda

The Future of Financial Advice changes may be dominating the attention of the financial services industry but Richard Gilbert points out that the Government has a great deal more on its plate.

The Federal Parliament sat for 15 days during the first three months of 2011. There has been a round of Additional Estimates by the powerful Senate Economics Committee, and an Australian Securities and Investments Commission (ASIC) oversight committee hearing by the Parliamentary Joint Committee on Corporations and Financial Services (PJC).

The financial services industry players would no doubt say that there is a high level of activity in Canberra, but in a parliamentary sense the level of engagement was not exactly running at a frantic pace.

Question Time provides a useful measure of what is important when it comes to political and policy priorities.

During the 15 or so House of Representatives Question Times in February and March, superannuation was the subject, albeit incidental, of just one question – which was on the mining tax.

It seems that most of the hard yakka in Canberra in super and financial planning is being done by the workers in the bowels of Treasury, and in the Senate and its committees.

Highly regarded Treasury official, Jim Murphy, who heads up Treasury’s markets operations, has no doubt been one such toiler.

On Australia Day he was awarded a Public Service Medal for ‘outstanding public service in developing public policy which delivered world’s best practice standards of corporate governance and financial system regulation, and in advising the Australian Government on its response to the global financial crisis’.

Jim has been the first advice port of call for governments of all persuasions for more than 20 years – only interrupted with a short stint at the International Monetary Fund in Washington DC.

He has been accessible to the industry in a way that few other public servants could rival, and his candour and industry knowledge have been appreciated immensely.

It would be difficult to find in the public service anywhere in the OECD world, an officer who occupied the ‘hot seat’ during the property trust failures, the bond crash, the tech boom correction, the millennium bug, the Asian financial crisis and more recently the global financial crisis – but Jim has been there.

The Senate Economics Committee held its February Additional Estimates Hearings on Treasury, ASIC, the Australian Prudential Regulation Authority and the Australian Competition and Consumer Commission (ACCC).

This committee is led by Senator Annette Hurley (Labor, SA) who has a reputation for being a fair and hard working committee chair.

She retires from the Senate in July 2011 and will be a loss to the Committee. Parliamentary enthusiasts find the transcripts of these hearings to be a lively reading exercise, as are some of the answers to the 200 or so questions that are taken on notice.

Bernie Ripoll, Member for Oxley, Qld, continues to chair the PJC. Bernie is another chair who is respected for his balance and objectivity.

In a first, and coincidentally in the wake of the James Hardie judgement in the NSW Court of Appeal, the PJC took evidence from the Attorney General’s Department on the Model Litigant Rules (MLRs) as well as its views on ASIC’s adherence to the MLRs.

In an interesting twist there was not a single mention of the high profile James Hardie case on which ASIC is seeking leave to appeal in the High Court, and one of the hotly contested issues is the MLRs.

And there was not a single engagement during the three-hour session on ASIC oversight on what FOFA would mean for ASIC. Perhaps this might be an issue at the next round of ASIC oversight.

FOFA is a hot issue for the industry. The national dailies report on FOFA, but the real action is in the trade papers.

Clearly, many in the financial planning industry feel unjustifiably threatened by the changes.

The Money Management website’s lead article of 31 March, 2011 on FOFA attracted several comments, all of which contained fairly strong language on the opt-in and its out workings.

Whoever is advising Minister Shorten on this one should set aside some time to read these comments, and others in the trade press, as they contain messages that reflect an apparently high level of frustration with FOFA.

The financial planning industry is a fundamentally good one by OECD standards.

Advice can be accessed via a number of different channels and there is intensely strong competition between institutions and funds.

However, rules which set out in fine detail how a contract for the provision for a service should proceed run the risk of being overly onerous, impossible to police and attractive to somehow avoid.

As well, they could be expensive and work against financial advice being both affordable and accessible.

One of the interesting battles of the minds and tactics will occur in the Senate when it resumes for the 2011 Budget.

The current Senate Notice Paper records the extant Senate Orders for the production of Government documents.

The list is not a long one, since Governments usually respond promptly to such orders – not only as a mark of respect to Senate procedures, but also to avoid needless debate which takes up valuable time for legislation.

However, in relation to two Senate Orders on superannuation default fund arrangements and the provision of report to the Senate by the Productivity Commission (PC), the chairman of the PC has advised the Senate that it is not in a position to comply.

When the Senate returns for the Budget sittings, there will no doubt be a debate on this matter led by Opposition shadow minister for superannuation, Senator Cormann.

The second motion agreed by the Senate includes the following paragraph: ‘Under section 49 of the Constitution the Senate has the undisputed power to order the production of documents necessary for its information, a power which encompasses documents already in existence and documents required to be created for the purpose of complying with the order’.

One such order for the creation of a document occurred in relation to a corporate law bill, where the Senate made an order requiring the Australian Securities Commission to produce a report on the first two years of operation of certain amendments to the bill. The report was duly produced in 1998.

Richard Gilbert is a former CEO of the Investment and Financial Services Association (now known as the Financial Services Council).