Mike Taylor reports that the likelihood of a bipartisan report and meaningful amendments emerging from the Parliamentary Joint Committee reviewing the Future of Financial Advice bills is becoming more remote.
Intra-fund financial advice is the opposite of the spirit and principles of Future of Financial Advice (FOFA). It is distorted, it is conflicted, it includes hidden payments, there is no way to opt-out and it will reduce access to true scalable advice.”
With that succinct description, the chief executive of the Financial Services Council (FSC), John Brogden, explained to the Parliamentary Joint Committee (PJC) reviewing the FOFA legislation one of the key flaws in the Government's broader policy approach.
He did so in the context of seeking to debunk one of the underlying arguments put forward by FOFA supporters – that while the new legislation may, indeed, lead to a reduction in the number of financial planners and an increase in the cost of financial advice, this will be offset by the availability of intra-fund and scaled advice.
Brogden said it had seemed that what had been forgotten in the debate was that intra-fund financial advice only applies to superannuation.
It does not apply to life insurance, debt, income protection, saving for a house, education and all of the other financial decisions and challenges people face".
What the FSC chief might have added was that the "scaled advice" regime which will evolve out of the FOFA legislation, while going further than intra-fund financial advice, will also be limited in terms of what can ultimately be delivered to clients.
None of the parliamentarians sitting on the PJC should have been particularly surprised by the information delivered by various financial services industry stakeholders who attended their public hearings last week.
Their attitudes had been made very clear in the nearly 70 written submissions filed both before and after Christmas.
And what should have been particularly disturbing for those parliamentarians was the number of submissions which pointed to deficiencies and contradictions within the two FOFA bills tabled in the House of Representatives by the then Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten.
Then too, there were the associated complaints that a number of undertakings and concessions indicated by Shorten had not been included in the bills, giving rise to further uncertainty and distrust in the financial services industry.
This was something reflected in Financial Planning Association (FPA) chief executive, Mark Rantall's opening address to the PJC hearing.
Not unlike the FSC, Rantall said it was the FPA’s view "that the FOFA legislative framework fails to protect consumers from the worst effects of product and gatekeeper failure, will reduce competition especially amongst the independent/boutique groups, and will ultimately increase the cost of financial advice to the average Australian who needs it most".
However, in what appeared to represent a telling indictment of the manner in which Shorten's office and the Minister's advisers had conducted proceedings, Rantall's address pointed to inconsistencies between what was discussed/agreed and what was ultimately delivered.
"Though the FPA acknowledges our significant involvement in the consultation process, in particular the numerous consultation meetings and discussions hosted by Treasury with the peak consultation group, as well as individually and with the Minister’s office (of which we are very appreciative), the process of the reform agenda was never documented, and many decisions were made that caused much confusion to the FPA and the consultation group in general – especially as to how and why certain decisions were made," the FPA chief executive said.
"For example, the decision to amend the fee disclosure statement from originally only applying to new clients in the draft legislation to then applying to all clients in the current legislation is a clear case in point. Similarly, the expansion of opt-in from within the MySuper framework and extending to all financial advice is another example," Rantall said.
What Rantall did not say, but what some other financial planning groups have implied, is that the changes around fee disclosure and opt-in reflected the agenda and the influence of the Industry Super Network (ISN).
Rantall’s words and a similar message from the Association of Financial Advisers (AFA) will undoubtedly resonate with the Coalition and some independents on the PJC, but are unlikely to change the attitude of Labor members.
However, in circumstances where the financial services industry is already facing heavy job losses in 2012, something which should give rise to concern amongst members of the PJC was the FSC's claim that implementation of the FOFA changes, as currently drafted, could cost nearly three-quarters of a billion dollars.
Brogden's opening address to the committee cited "modelling based on data from the industry", indicating that the cost of implementing the FOFA package in full will be $700 million.
"This figure is based on what we know now in tranche 1 and 2 and obviously does not take into account further legislation yet to come before Parliament," he said.
"I can further advise the Committee that the annual cost to the industry of complying will be $375 million."
The FSC's modelling is consistent with warnings contained in the submissions of major financial services houses, and reflects not only the costs involved in changing underlying information technology platforms, but also costs associated with the administrative changes around "opt-in".
A consistent theme of exchanges during the PJC public hearings last week was how far the proposed FOFA reforms had drifted from the original bipartisan recommendations of the PJC which reviewed the collapse of Storm Financial.
As each day goes by, it seems more and more unlikely that the current PJC process will deliver a second bipartisan result.
