As the clock ticks for the Coalition to push through financial advice reforms before the end of the year, politicians should take the politics out of the vote and think about the policy implications of the wind-back.
The crisis of confidence in the financial planning industry is expected to intensify next week when the corporate regulator releases a critical report on the life insurance industry.
It prompted independent senators Nick Xenophon and John Madigan to circulate two amendments to the Coalition's proposed changes to the Future of Financial Advice legislation.
The amendments tackle the worst and arguably most potentially dangerous aspects of the Coalition's reforms – namely general advice and changes to the best-interests duty.
They followed the narrow defeat of a disallowance motion put forward on Wednesday evening by Labor senator Sam Dastyari. It was the second disallowance motion in three months.
The closeness of the vote – 34 against the disallowance and 32 for – speaks volumes about the confusion, controversy and growing disquiet among crossbenchers over the implications of the Coalition's FOFA wind-back.
Palmer United Party senator Jacqui Lambie crystallised some of the disquiet in an interview with the Australian Financial Review before the disallowance vote.
"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."
Against this backdrop, a procedural challenge has been mounted by another Senate committee that needs to be resolved in the next two weeks, or else it will throw a spanner in the works.
A more sensible option would be to reopen the debate and discuss it after the release of two reports: the Australian Securities and Investments Commission report on life insurance, which is expected to raise concerns about churning of clients, largely due to conflicted remuneration; and the Murray report on the financial services system, which will be out before the end of the year.
With a few weeks left of Parliament, this is not a big stretch, particularly given the significant problems with consumer confidence in relation to financial advice.
David Murray's interim report found conflicted remuneration structures "undermine the ability of customers to get quality advice".
It said it would look at the issue of vertical integration, given the high concentration of the Australian banking system and its expansion into wealth management in the past 15 years or so. Banks and AMP own or control up to 80 per cent of the financial planning industry.
Senator Xenophon summed it up in comments to the Senate on Wednesday night: "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."
It seems that amid all the debate on financial advice reforms, consumers have been forgotten, despite lobbying by groups such as Choice and National Seniors Australia.
One of the problems is the FOFA reforms are not straightforward and are open to interpretation. It means a straight question doesn't get a straight answer.
Minister for Finance Mathias Cormann was recently interviewed by Alan Jones about conflicted remuneration and the role of bank tellers.
When asked if tellers still get commissions or bonuses for selling bank products, Jones was howled down.
"The banker teller will not be able to receive a bonus as a result of selling that product because … I have made more explicit the ban on remuneration that would conflict the advice given," Senator Cormann said.
He went on to say conflicted remuneration since 2012 had been banned and would continue to be banned under the proposed changes.
But it isn't quite so simple. Under the reforms banks can pay sales incentives to their staff based on the amount of products, including complex products, sold through general advice provided the payment is a bonus and is not "solely" related to the sale of a single product or class of product. This is satisfied by having sales targets placed across a number of products or which include another measure for instance, customer satisfaction.
The payments are made to employees for sales of the banks' products. There is no limit on the quantum of these bonuses. More importantly, the exemption is in addition to other exemptions, like balanced scorecard bonuses, which apply to personal and general advice.In a parliamentary speech on Wednesday night Senator Cormann referred to the Commonwealth Bank financial planning scandal, saying the stories were terrible.
"But they are stories in relation to a period between 2003 and 2012, that is, before the changes that were passed – with the support of the Coalition – by this Parliament."
Sadly, some of the stories relate to 2003 but many occurred much later,and the case of Noel Stevens and his life insurance policy finished in the Court of Appeal in December 2013. Macquarie Group is still sorting out its financial advice mess, and others are already finding loopholes in FOFA to make money.
Correction: Due to an error by Hansard, the print and original online version of this story incorrectly quoted Senator Cormann as saying the stories were in 'relation to a period between 2003 and 2005' .
