Amid the deepening scandals at Commonwealth Bank’s wealth management business, a special Senate committee has recommended that the Abbott Government push ahead with its plan to loosen regulation of Australia’s 17,000 financial planners.
The government is seeking to water down legislation (known as the Future of Financial Advice reforms), passed by the former Gillard Government, which tightened oversight of planners and other professionals who market wealth management products to the public.
Although the proposed legislation would likely face opposition from minority parties in the Senate, consumer groups have warned that the government might try to fast-track its overhaul by proclaiming new regulations.
This would enable the government to avoid having to negotiate a compromise with minority parties in the upper house.
Choice spokesman Tom Godfrey cautioned the government against bypassing the parliamentary process, saying that the reforms involved a significant watering down of protection for consumers in an industry which had wiped billions from families in the last decade.
“As this debate is all about trust, I think everyone would agree these issues need to be scrutinised in an open forum and not ushered through under the cloak of regulation,” Mr Godfrey said.
“The government needs to remember that this debate is about maintaining financial protections for real people.
“While the Senate report appears to dismiss the concerns of real people, any legislation or regulation must make sure that consumers are protected.”
The report, prepared by the Senate’s economics committee, potentially opens the way for volume-based commissions to be revived in the financial planning industry and also relaxes the obligations of advisers to act in the interests of clients.
While Labor and Greens members of the committee have issued dissenting reports, independent South Australian senator, Nick Xenophon – who is also a member of the committee – has not indicated whether he would vote to block the reforms in the upper house.
The Palmer United Party also has not signalled its voting intentions, however a wave of financial planning disasters in Queensland in the last decade might shape its attitude towards the government’s “tap and go” reforms. Townsville-based planning firm, Storm Financial, collapsed in 2008 with almost $5 billion of clients’ assets under advice.
Mr Godfrey said the proposed changes would enable planners to put their own interests ahead of clients when giving personal advice on banking and insurance.
“You will not be able to trust advice given on credit cards, home insurance or bank accounts,” he said.
“The committee’s report acknowledges that the proposed legislation allows financial advisers to work around the basic obligation to act in a clients best interests.
“For example, when providing scaled advice or advice on limited topics, advisers will be able to direct consumers to products that clearly benefit the adviser more than the person being advised.”
The Superannuation Consumers Centre called on the government to release more details of its proposed changes on commissions for general advice.
SCC chair Jenni Mack said although the committee’s recommendations for limiting commissions for general advice were encouraging, it was still not clear what they would mean for consumers.
“The issue is so important that the government must release the detail of any changes and consult on them before issuing regulations or legislation,’’ Ms Mack said.
“Not to do so would be a recipe of uncertainty and market place chaos as it is far from clear what the new Senate will think about the proposed watering down of FoFa.”
The move to wind back regulation of pay practices in the wealth management sector follows revelations in the recent weeks that the Commonwealth Bank had tried to delay compensation payouts to customers who were known to be victims of its scandal-plagued financial planning arms.