It was the best of times, it was the worst of times (depending on your socio-economic bracket).
One thing about this government, every day brings new things to discuss, none of them good, unless you happen to be a mining company, a global corporation, an arms manufacturer, a wealthy tax avoider, or a financial adviser.
A Senate committee recommended in June that the Commonwealth Bank face a judicial inquiry as part of its report on the performance of the Australian Securities and Investments Commission (ASIC).
Financial planners working for Commonwealth Financial Planning (CFPL), a subsidiary of CBA, were accused of putting clients’ money into risky investments without their permission. They were also accused of forging documents and earning hefty commissions along the way.
“These actions were facilitated by a reckless, sales-based culture and a negligent management, who ignored or disregarded non-compliance and unlawful activity as long as profits were being made. The CBA’s compliance regime failed, which not only allowed unscrupulous advisers to continue operating, but also saw the promotion of one adviser, thus exposing unsuspecting clients to further losses. ASIC appears to miss or ignore clear and persistent early warning signs of corporate wrongdoing, or troubling trends that place the interest of consumers or investors at great risk.”
The government has commissioned a report into the financial services industry, ironically enough headed by former Commonwealth Bank chief and inaugural Chairman of the Future Fund, David Murray. His interim report, released in July, found the following:
- There is not enough competition on superannuation fund fees, and scope for more efficiency.
- Retiring Australians are given little guidance on what they should do with their money and the types of investment products they should buy.
- The inquiry recognised the importance of good financial advice and the need for affordable, non-conflicted advice. It suggested that the minimum standards required to become a financial advisor be increased and that a public register should be introduced.
- Current disclosure of investment product rules lead to “lengthy documents that often do not enhance consumer understanding of financial products and services.”
- General advice should be renamed as ‘sales’ or product information so that savers could better distinguish whether an agent was selling or actually advising something.
The final report is expected to be completed by November.
As well as the Murray report, the corporate regulator ASIC is due to release a critical report on the life insurance industry next week which is expected to raise concerns about churning of clients, largely due to conflicted remuneration.
Rather than heeding the warnings from the Senate or waiting for these reports to be released, the government, with the help of the pensioners’ friend, Clive Palmer, is trying to ram through its changes to the financial advice laws.
Palmer insisted on some changes which had the effect of doing little to strengthen protection and a lot to add more red tape.
Jacqui Lambie, in her inimitable way, showed her deep understanding of the subject making it all clear as mud. (And this person holds the balance of power).
“We look at it, and we may have made a couple of errors, but we’re swinging around now to fix them up,” she said. “[We] probably didn’t put the FOFA in cement and we’re making sure that is going to be done before we put that bill through, to make sure that is cemented in, a couple of things in it that were, I guess, a little bit debatable.”
Her mother did warn us that Jacqui never did her homework.
The regulations will allow financial planners associated with banks to continue to receive payments for directing customers towards the banks’ own products.
David Whiteley, of the Industry Super Association, said the changes would not prevent bonuses and other forms of conflicted remuneration being paid to financial advisers.
The chief executive of National Seniors, Michael O’Neill, said the deal would do nothing to help investors or fix problems in the industry.
“On the surface it adds nothing to the issue at all, except potentially another layer of red tape, which was the reason why the government made its changes to start with. This was a grubby deal and Clive Palmer has treated older Australians with contempt the way he’s dealt with this today,’’ he said.
Chris Bowen said the government’s changes to the FoFA regulations had scored a ”daily double” by reducing consumer protections from unscrupulous financial planners and increasing red tape.
”They’ve emasculated the requirement to work in the best interests of the client,” he said.
Now, independent Senators Nick Xenophon and John Madigan have introduced two amendments to tackle the worst and arguably most potentially dangerous aspects of the Coalition’s reforms – namely general advice and changes to the best-interests duty.
Considering the banks and AMP own or control up to 80 per cent of the financial planning industry, as Nick Xenophon put it,
“The financial services industry is big enough and ugly enough to look after itself and … consumers are the ones government should be providing with certainty and adequate protections.”
But hey…we’re open for business. Caveat emptor.