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ROUNDTABLE PARTICIPANTS: Joe Hockey – Shadow Treasurer; Mathias Cormann – Shadow Assistant Treasurer, Shadow Minister for Financial Services and Superannuation; Gerard Doherty – Managing Director, Fidelity Australia; Mark Rantall – CEO, Financial Planning Association of Australia; Michael Rice – Director, Rice Warner Actuaries; Richard Klipin – CEO, Association of Financial Advisers; Ian Silk – CEO, Australian Super; John Brogden – CEO, Financial Services Council; Fiona Reynolds – CEO, Australian Institute of Superannuation Trustees; Brad Cooper – CEO, BT Financial Group; Andrea Slattery – CEO, SMSF Professionals Association of Australia; Warren Chant – Principal, Chant West; David Whiteley – CEO, Industry Super Network; Pauline Vamos – CEO, Association of Superannuation Funds of Australia; Liz Westover – Head of superannuation, Institute of Chartered Accountants; Michael Dwyer – CEO, First State Super; Steve Tucker – CEO, MLC; Colin Tate – CEO, Conexus Financial; publisher, Professional Planner.
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Colin Tate: We conducted a Dealer Group Summit on Monday and Tuesday in the Blue Mountains, where we had 35 CEOs of the largest dealer groups in Australia and they all came back to pleading with you guys to suggest that the opt-in proposals will be an absolute disaster for a whole bunch of reasons; suggesting that banning commissions on life insurance within super, and then not [banning commissions] outside of super will be an unmitigated disaster; that the ability of middle class, middle Australians to find affordable and appropriate advice is being compromised and that scalable advice solutions are being botched up; and that all of these FoFA changes are creating vertical integration of large organisations, helping the banks.
“All-up, in terms of FoFA, there’s a lot in FoFA that we can support”
Senator Mathias Cormann: When the Government pursues things, like clients should be forced to re-sign contracts with their advisers on a regular basis, whether it’s once a year, or once every two years, it is just something that adds significant new red tape. It’s not something that happens anywhere else around the world. It of course adds to the cost, it of course then will be passed through to consumers, which will mean that access to advice will become less available and less affordable for a whole range of consumers, down the track, for no obvious benefit.
Now, in relation to this decision now, which has popped up quite late in the process, to ban commissions on risk insurance inside super, it’s very hard to understand where that came from. Chris Bowen, when he put out the discussion paper back in April 2010, clearly treated commissions on risk insurance differently from commissions on investment products, because there was a recognition that the commission-based payment structure is not, we would argue, a conflicted remuneration structure when it comes to payment for advice in the context of risk insurance.
Now, not only has Bill Shorten decided to step away from it, but he’s actually created another distortion. He’s made a decision to treat commissions on risk insurance inside super differently from commissions on risk insurance outside super.
There is no rational reason to treat commissions on risk insurance inside super differently from commissions on risk insurance outside super. If he thinks they’re bad, they should be banned everywhere. We happen to think they shouldn’t be banned. They’ve tried this in the UK. It was a bad policy there; they reversed that decision very quickly because of the implications of that. We, of course, should learn from that experience.
All-up, in terms of FoFA, there’s a lot in FoFA that we can support. We are in favour of changes and reforms that improve transparency, efficiency and consumer choice; and of course, things like the statutory best interest test is a good proposal – there’s a range of other things in there that we support.
Steve Tucker: I agree with Mathias; I think that [banning commissions inside super] was a left-field policy that was, I think, either brought in as part of a negotiation, or some other concept that was going around just keeping superannuation completely commission free, which just creates distortions and will end up with less insurance being put in place.
David Whiteley: Let’s just have a look at a couple of issues. The first one is this idea that requiring the financial planner to renew a contract with that client, to gain the approval of that client to charge them, every year or every couple of years, is somehow going to be some major cost to the financial planning industry. There’s no evidence to support that. There’s no independent Treasury research to support that. There’ll be a negligible cost and there’s some evidence, which we commissioned through Rice Warner, to that effect.
The second idea is that the cost of that price will go up – there is no evidence to support that. The cost of advice will become transparent, but the cost of advice will not necessarily go up. Part of the proposal the Government’s got, of course, is that super funds can provide more advice to their members on quite specific issues. That can be done at very, very low cost. That’s exactly the advice that people need. That’s opposed I think, by a range of [people in] the financial planning industry.
