While we were waiting for the government’s formal response to a Senate inquiry into proposed amendments to FoFA, the Minister for Finance, Mathias Cormann, was out and about talking up the amendments.
In an interview earlier this week with radio broadcaster Alan Jones, Cormann raised an interesting question: Should the original opt-in provision of the Future of Financial Advice reforms be opposed because it is anticompetitive?
One of the government’s amendments is to abolish opt-in. It claims that the measure imposes too much of a compliance burden on financial planners. Professional Planner has written before that a compliance cost is really the price of a ride on the superannuation gravy train – if you want to clip the ticket of compulsory superannuation and be perceived as a professional, there had better be a compliance burden – but anyway, Cormann seemed to suggest another reason for abolishing it.
The interview with Jones covered a range of issues, including unclaimed monies, default superannuation funds, and FoFA.
Cormann first-off described the structure set up by the Gillard government to select default superannuation funds as “anticompetitive…a closed shop arrangement to favour union dominated industry funds which happen to be close to the Labor Party”.
“We have always said that we are totally committed to ensure that there is proper and genuine competition in this space,” he said.
Opt-in
A few moments later, Jones asked Cormann about the opt-in provisions of FoFA.
“A financial adviser must obtain a client’s consent in writing every two years for the relationship to continue,” Jones said.
“Well we do not agree with that,” Cormann replied.
“And you see this is the point you just raised before regarding the anticompetitive arrangements around default super. Labor was driven very much in their agenda by union-dominated industry funds who had a particular vested interest.”
That “vested interest”, for what it is worth, is to ensure that clients do not pay ongoing fees to financial planners if they are not receiving ongoing services in return. To use the government’s own terminology, a planner who receives a trail but does not provide an ongoing service is very much a “leaner”, not one of Joe Hockey’s venerated “lifters”. And if the age of entitlement is genuinely over, as Hockey has claimed more than once, then this particular rort must be eliminated, along with the others.
The legislated opt-in proposal might be overly bureaucratic, but the principle is sound; indeed, there’s effectively already a “no service, no fee” provision in the Financial Planning Association (FPA) professional standards. That’s why the idea was floated all those months ago that compliance with an ASIC-approved professional code should remove the obligation to comply with a legislated opt-in provision. But plenty of financial planners don’t comply with a professional code, and soon they probably won’t have to comply with a legislated opt-in requirement either.
The opposite of anticompetitive
But in any case, opt-in can’t seriously be opposed on the grounds that it’s anticompetitive. It’s exactly the opposite. If you have to get a client’s explicit consent every two years to continue to charge a fee, you might be encouraged to work diligently to keep them sweet so they do not leave you. And if you know that clients of other firms are regularly being asked the same thing, there is potentially an opportunity there for you to pitch your services to them.
That looks like the very essence of competition.
Perhaps all Cormann meant to do was to draw parallels between “industry fund-dominated” agendas underpinning both the default fund process and opt-in provisions.
Some compliance burden is absolutely appropriate for those who presume to make a living on the back of other people’s money, particularly when that money is gathered compulsorily. If the government is really saying that a reason to abolish opt-in is because it’s anticompetitive, then that’s a pathetic argument.
