The Senate Economics Legislation Committee tabling its report into the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 is a bit like Christmas Eve: it means Christmas Day is close, which is exciting; you can see the presents under the tree; but you still don’t know yet what you’re really getting.
The report is not perfect, and it doesn’t give everyone everything they want. It seems in some places to accept opposition to the proposed amendments as having considerable merit, but ultimately makes only three recommendations – and the third one is essentially a recommendation to implement the first two.
There’s still some way to go yet – and plenty of opportunity to get deeply lost in the minutiae of subsections and technical arguments, for those so inclined – before FoFA is settled. And while the report is an important step along the path to concluding the five-year-plus process of reforming financial planning legislation in Australia, it nevertheless still contains only recommendations. The final form of the FoFA amendments remains anyone’s guess.
The government is yet to respond to this report, and will do so in its own time. There could be movement on the issue of banning commissions on general advice as early as today, but a holistic response will probably be a little while longer in coming. There’s a second senate inquiry still taking place, this one into the performance of the Australian Securities and Investments Commission (ASIC).
In many ways the inquiries are complementary, but it looks as though the reports are being produced in the wrong order. One inquiry looks at how to fix financial planning; the other looks at what goes wrong – horribly wrong – when financial planners are incentivised the wrong way and run amok under either weak or complicit management. They’ve had a stab at fixing the system before first getting to the bottom of what can go wrong.
Meanwhile, we have the Financial System Inquiry (FSI), which can hardly claim to be undertaking comprehensive reform of the financial services sector if it doesn’t closely examine the relationship between product “manufacturing” and advice (or distribution) and the role that financial planners and salespeople play in it. Nor can it sensibly reform the superannuation system without looking at how financial planning might actively work to meet the intent (and the national interest aspect) of an effective retirement income policy.
The senate committee report’s second chapter concludes:
The committee is cognisant of the need, when considering the proposed changes, to strike the right balance between protecting consumers and relieving the burden imposed on the financial service sector, thereby ensuring the availability, accessibility and affordability of high-quality financial advice. [Emphasis added.]
Then it adds:
The committee’s focus is not only on the immediate costs and benefits to consumers and providers alike but on the long-terms gains for both. It is particularly concerned with ensuring that the changes result in Australian retail clients having access to good quality information and affordable advice about financial products. [Emphasis added.]
It might be veering towards semantics to wonder why in one paragraph the report talks about “high-quality” financial advice; then two paragraphs later talks about only “good quality” information and “affordable” advice.
Let’s hope semantics is all it is. For what value is and financial advice if it’s cheap and easy to get, but ultimately also substandard, or skewed against the interests of consumers? Ask anyone who has been taken in by a highly motivated salesperson and who has consequently lost money by being sold an inappropriate product.
Oh wait – that’s exactly what the other inquiry is doing.
